V.Subramanian v. State

IN THE HIGH COURT OF JUDICATURE AT MADRAS DATED: 10.07.2009CORAM:THE HONOURABLE MRS.JUSTICE ARUNA JAGADEESANCrl.OP.No.25924/20061.V.Subramanian2.Nataraj @ Natarajamurthi3.Kaveri Ammal4.Maheswari ..PetitionersVsState by Inspector of Police Economic Offences Wing 2,Coimbatore ..RespondentPrayer:- This Criminal Original Petition is filed to call for therecords in CC.No.52/2006 on the file of the Special Court at Chennaiunder Tamil Nadu Protection of Interest of Depositors (In FinanceEstablishments) Act 1997 and quash the proceedings as far as thePetitioners are concerned. For Petitioner:Mr.B.Kumar, SC for Mr.R.LoganathanFor Respondents:Mr.S.Senthil Murugan Additional Public ProsecutorORDER This Criminal Original Petition is filed to quash theproceedings in CC.NO.52/2006 against the Petitioners, who are arrayedas A8, A6, A9 and A10 on the file of the Special Court, Chennai forthe offences under the provisions of the Tamil Nadu Protection ofInterest of Depositors Act (In Finance Establishments) Act, 1997(herein after referred to as the Act).2. The basic facts of the case are as follows:-M/s.Sri Arunachaleswara Mills (herein after referred to asthe Mills) is a Partnership Firm and the original partners are A2 toA5 and they were managing the Mills from 1966 onwards. The Millswas collecting deposits from the public from 1988 onwards on apromise to repay the same with interest and whole of thesetransactions had come to an end by 1996. Thereafter, i.e. from 1996 https://hcservices.ecourts.gov.in/hcservices/ onwards, there were no fresh deposits, but the earlier deposits werebeing renewed along with the outstanding interest and in pursuance ofit, fresh deposit receipts were issued. The deposit receipts wereissued in the name of "Sri Arunachala Investment Company", which isonly a name lender, under which only the said Mills was transactingthe business. In the due course, the Mills became sick with seriousattendant financial difficulties and they were not able to makepayment even towards the statutory dues, such as wages to workers,electricity charges, employees provident fund, etc. 3. At that stage, an incorporated Company by nameM/s.Enson Cotspin (P) Limited along with other persons by nameNataraj/A6 and his wife Kamalaveni took over the Mills, became thepartners and erstwhile partners A2 to A5 had retired by them. Thispartnership deed was duly registered with the Registrar of Firms andchanges took place with effect from 28.11.1999. The new managementalso could not successfully manage the Mills and pay the creditorsand the Mills further became sick. At this stage, the Petitionersherein became the partners of the Mills on 25.11.2000, after theprevious partners retired. Now, it appears that the Petitioners 3 and4 also retired from the partnership with effect from 4.2.2002.4. The FIR in CC.No.27/2002 has been registered on acomplaint given by one Kannammal on 25.9.2002 that she had depositeda sum of Rs.1,00,000/- on 16.6.1990 with the ArunachaleswarInvestment Company, but the deposit has not been refunded to her.The Petitioners after taking the Mills have themselves investednearly Rs.60 Lakhs, which had been utilised for making paymenttowards wages to workers, electricity charges and the employeesprovident fund. The loan payable to the Indian Bank was alsodischarged to an extent of Rs.15 lakhs. 5. According to the Petitioners, since they took over theaffairs of the Management of the Company from 25.11.2000, they cannotbe made responsible for any act done by the erstwhile partners whoactually collected the deposits and failed to repay the same. Themain contention of the Petitioners is that that they ought not tohave been made as accused in the proceedings in CC.No.52/2006 as itcannot be said that they have committed any violation of theprovisions of the said Act or committed any offence punishable underSection 420 of IPC. On the above said ground, the Petitioners seekto quash the proceedings in the complaint.6. Mr.B.Kumar, the learned senior counsel for thePetitioners strenuously contended that the Petitioners, who arearrayed as A8, A6, A9 and A10 became the partners of the Mills onlyon 25.11.2000, which is evident from the records of the Registrar ofFirms and no deposits have been made after 1990 and the entiretransaction had been over by the end of 1996 and that the Petitionerscannot be prosecuted for the default committed by the erstwhile https://hcservices.ecourts.gov.in/hcservices/ owners in defaulting to return the deposits on the date of itsmaturity. The learned senior counsel would submit that thePetitioners took over the Management of the Mills, which had becomesick and invested nearly Rs.60 Lakhs, which has been utilised formaking payment towards wages to workers, electricity charges andemployees provident fund, etc., which would show the bona fide of thePetitioners. It is contended that A2 to A5 are alone responsible forreceiving the deposits and non payment of the depositors' money afterits maturity and therefore, no criminal liability could be fastenedon the Petitioners herein. He would further submit that thePetitioners cannot be construed as the persons responsible for theManagement of the affairs at the relevant point of time, when thedeposits were collected and default committed, as they have takenover the Management only in the year 2000, i.e. after the depositsbecame matured. Further, he would submit that none of theingredients set out under Sections 420, 406 read with 120B of IPC areattracted as against the Petitioners to allow them to face thecriminal prosecution.7. The extract from the ledger of the Registrar of Firmsis produced, which shows that the Petitioners had joined the Firmwith effect from 27.11.2000. The Petitioners 3 and 4 had retiredwith effect from 4.2.2002. In the counter filed by the Respondent,it is admitted that the petitioners had become the partners of SriArunachaleswara Mills at Udumalpet with effect from 27.11.2000 withsubstantial investment and that the collection of deposits had notbeen made by the Petitioners, after they took over the Management. Itis also admitted that the Mills became sick and had borrowed moneyfrom the Indian Bank. The fact that the Mills was in Management ofM/s.Enson Cotspin (P) Limited, prior to the taking over by thePetitioners and A2 to A5 were managing the Mills at the time whenthe deposits were collected is also admitted in the counter. It isalso admitted that the investment made by the Petitioners to anextent of Rs.65 Lakhs was utilised to make payment towards wages toworkers, electricity charges and employees provident fund.8. From the above, it is clear that at the time whendeposits were collected from the public, the Petitioners were not inthe picture and had joined the Company with effect from 27.11.2000.But, in the charge sheet, accusation is made even as against thePetitioners that they have collected deposits in the name of A1 andA2 For, from 1990-98. It is alleged that A3 to A10 conspired togetherand collected deposits with a fraudulent intention not to refund theamount with interest to the depositors. This accusation as againstthe Petitioners is baseless, because they have taken over theManagement only with effect from 27.11.2000 and therefore, therecannot be any dishonest intention on their part to defraud thedepositors. https://hcservices.ecourts.gov.in/hcservices/

9. The only stipulation that operates against thePetitioners is that they could not return the amount, when thedeposits got matured, after they took over the Management. On thesaid ground, the Petitioners cannot made liable for criminalprosecution, because a mere failure to return the deposits promptlyto the depositors after they took over the affairs of the Managementis not sufficient to hold that they are liable either under Section 5of the said Act or under Section 420, 406 of IPC. There was noentrustment of money to the Petitioners within the meaning of Section405 of IPC and the relationship that has been created after theybecame the partners was that of the creditors and debtors. None ofthe ingredients of Section 405 and 415 of IPC are attracted asagainst the Petitioners. 10. Section 5 of the said Act makes the persons, who wereresponsible for the Management of the affairs of the financialEstablishments criminally liable in case of default committed by themin returning the deposit amount or the interest on the said deposit.Section 5 reads as follows:-"5.Default in repayment of deposits and interestshonouring the commitment:- Notwithstanding anythngcontained in Chapter II, where any FinancialEstablishment defaults the return of the deposit ordefaults the payment of interest on the deposit, everyperson responsible for the management of the affairs ofthe Financial Establishment shall be punished withimprisonment for a term which may extend to ten years andwith fine which may extend to one lakh of rupees and suchFinancial Establishment is also liable for fine which mayextent to one lakh of rupees."11. The words "responsible for the management of affairs ofthe Financial Establishment" could be interpreted to mean that onlythose persons, who were responsible for collection of the depositsand failed to return the money or the interest on such deposit, arecriminally liable. That is why the word "responsible" is expressedand not the word "management" alone is used. The severity of thepunishment with imprisonment for a term, which may extend to 10years and with fine, which may extend to Rs.1,00,000/- would onlyrefer to those persons, who were responsible in collecting theamounts from the depositors on promise to give higher interest andfailed to return the said deposit even after its maturity.12. In the instant case, though the Petitioners were inManagement of the affairs of the Establishment from 27.11.2000, thecommission of the offence relates to the period 1990 to 1998, duringwhich the erstwhile partners were in Management and responsible forthe affairs of the Management. In such view of the matter, the https://hcservices.ecourts.gov.in/hcservices/ Petitioners cannot be made criminally liable and the proceedings inCC.No.52/2006 against the Petitioners cannot be sustained.13. In view of the above said reasons, the criminalproceedings in CC.No.52/2006 against the Petitioners is quashed andthis Criminal Original Petition is allowed.sd/-Asst.Registrar/true copy/Sub Asst.RegistrarSrcm To1. The Special Judge, (Tamilnadu Protection of Interest of Depositors, in Finance Establishments) Act 1997, Chennai.2. The Inspector of Police, Economic Offences Wing-2, Coimbatore.3. The Public Prosecutor, High Court, Madras.+ 1 c.c. to Mr. R. Loganathan, Advocate. S.R.No.30095.Crl.OP.No.25924/2006MSM (CO)GSK 20.07.2009.