IN THE SUPREME COURT OF INDIA

CRIMINAL APPELLATE JURISIDCITION

CRIMINAL APPEAL NO.688 OF 2005

IRIDIUM INDIA TELECOM LTD.                              … APPELLANT  

VERSUS

MOTOROLA INCORPORATED & ORS.                … RESPONDENTS  

J U D G M E N T

SURINDER SINGH NIJJAR, J.

1. The  original  complainant  Iridium  India  Telecom  Ltd.  

(hereinafter referred to as the appellant) has preferred this appeal  

against the judgment and order dated 8th August, 2003, passed by  

a  learned  single  judge  of  the  Bombay  High  Court  quashing  the  

criminal complaint dated 3rd October, 2001 filed by the appellant,  

inter alia, against respondent no.1, namely, Motorola Incorporated.  

2. The  complaint  pertained  to  allegations  of  cheating  under  

Section  420  read  with  Section  120B  of  the  Indian  Penal  Code.  

Although the complaint  spread over  thirty  five  pages elaborately  

sets out the factual scenario, we may notice the foundational facts.

3. Motorola Inc (respondent no. 1), Iridium LLC and Iridium Inc.  

are a part of one group of corporations created through mergers  

and takeovers.  Respondent no. 1 was the founder promoter of  a  

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REPORTABLE

corporation  known as  Iridium LLC incorporated  in  the  State  of  

Delaware, U.S.A; Iridium LLC was incorporated on 19th July, 1996  

as a wholly owned subsidiary of respondent no. 1. Iridium LLC was  

the successor of another corporation known as Iridium Inc. which  

was incorporated on 14th July, 1991 also a wholly owned subsidiary  

of respondent no.1. On or about, 19th July, 1996 Iridium Inc was  

merged into Iridium LLC.  

4. Iridium System/Iridium Project (which expressions are used  

inter-changeably)  was  represented  as  being  the  world’s  first  

commercial  system designed  to  provide  global  digital  hand  held  

telephone data, facsimile,  paging, geo-location services similar to  

today’s cellular phone. It was further averred that Iridium System  

was conceived by respondent no. 1 in the year 1987 and it  was  

intended  to  be  a  wireless  communication  system  through  a  

constellation of 66 satellites in low orbit to provide digital service to  

mobile phones and other subscriber equipment globally.  

5. It was emphasized that Iridium Inc. was an instrumentality of  

respondent no. 1; the corporate veil from behind which respondent  

no. 1 operated.  Respondent no.1 conceived, orchestrated, directed  

and  controlled  Iridium  and  was  at  all  material  times  Iridium’s  

dominant shareholder, supplier, financier, controller of its board,  

as well as the developer of Iridium’s business model and the creator  

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of the Iridium system, which was respondent no.1’s  proprietary  

space  based  Satellite  Communication  system.  Respondent  no.1  

also  designed,  developed,  sold,  maintained  and  operated  the  

hardware  and  software  of  the  Iridium  System/Project.  It  was  

further alleged in the complaint that respondent no.1 initially held  

the entire equity in Iridium. Although the equity of respondent no.1  

was  subsequently  diluted  by  sale  to  various  investors  and  

shareholders  through  a  series  of  private/public  offerings,  

respondent no.1 continued to hold, own and control a substantial  

part  (about  19.6%)  of  the  equity  of  Iridium.  From the inception  

respondent  no.1  exercised  effective  control  over  the  Board  of  

Directors of Iridium. It was further alleged that most of the persons  

on the board of Iridium were either former employees or current  

employees of  respondent no.1 who were deputed or seconded to  

Iridium.  

6. It was further alleged that respondent no.1 was the primary  

contractor for Iridium system/project. As already stated above, this  

comprised  of  five  segments.  These  five  segments  were  supplied,  

sold, maintained and operated by three contracts viz. (i) the space  

system contract; (ii) the operation and maintenance contract and  

(iii)  the terrestrial  Network Development Contract.  Each of  these  

contracts was awarded by Iridium Inc. to respondent no.1. The said  

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contracts  were  intentionally  structured  to  ensure  that  although  

Iridium paid all the development costs, respondent no.1 would still  

own the most valuable assets of the Iridium system. It was also  

alleged that respondent no.1 provided itself with excessive profits  

while saddling Iridium with exorbitant costs.  Substantially, all the  

initial  capital  raised  by  Iridium  (form  persons  which  included  

Iridium  India  Telecom  Ltd)  was  used  to  make  payments  to  

respondent no.1. In all a sum of Rs. 19500 crores (6.5 billion U.S $)  

has  been  paid  till  date  by  Iridium  to  respondent  no.1  for  the  

Iridium system.  

7. It  was further  mentioned in  the  Complaint  that  in  August  

1992,  a  PPM  was  floated  through  merchant  bankers,  Goldman  

Sachs  (who  acted  as  placement  agents)  with  the  intention  of  

attracting investments from large and successful companies’ world  

wide.  Copies of  PPM were distributed to and received by several  

prominent Indian companies, both in the public and private sector.  

Prominent amongst these were:

[a] Infrastructure  Leasing  and  Financial  Services  Ltd.  

(IL&FS)

[b] Industrial Development Bank of India (IDBI)

[c] Industrial Credit and Investments Corporation of India  

(ICICI)

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[d] State Bank of India (SBI)

[e] Export Import Bank of India (EXIMP Bank)

[f] Housing Development Finance Corporation Ltd. (HDFC)

[g] Unit Trust of India (UTI)

[h] General Insurance Corporation of India (GIC)

[i] Life Insurance Corporation of India (LIC)

8. The object of the said PPM was to obtain funds/ investments  

to  finance  the  “Iridium project”.  The  PPM set  out  in  detail  the  

salient  features  of  the  Iridium  project,  its  technical  suitability,  

commercial  feasibility,  risk factors. Thus it was claimed that the  

said document was in the nature of a prospectus. It contained a  

positive invitation to offer. The next equity offering was made under  

the Private Placement Memorandum in 1995 [1995 PPM] wherein  

the original representations and/or warranties and/or assurances  

were substantially watered down and for the first time references  

were  made  to  the  fact  that  the  system  may  not  successfully  

operate.

9. It was also mentioned in the Complaint that certain personal  

representations  were  made  by  the  representatives  of  respondent  

no.1  to  further  induce  the  persons  to  invest  in  Iridium.  In  the  

course  of  these  presentations  and  meetings,  promotional  video  

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cassettes which depicted the progress of the project, the successful  

attainment of various project milestones well within schedule and  

how  the  said  project  would  actually  function  when  fully  

operational,  were  displayed.   The  representations  made  by  

respondent no. 1 are as under:

(a) The  Iridium System would  use technology  which was  tried and tested and had been successfully applied in a  number of operational systems including systems used  by NASA and the U.S Department of Defence. In other  words  the  technology  that  would  be  employed  in  the  Iridium System, was not untested or experimental, but  was a proven and tested technology with a past record  of successful operation.

(b) The Iridium System would provide a subscriber link on  a  global  basis,  which  would  be  accessible  virtually  anywhere on the earth surface, save and except cases  where  severe  or  unusual  conditions  prevented  the  reception of signals. In normal operating day-to day real  life  environment,  the  Iridium System would,  therefore  offer  a high quality link. In particular Iridium phones  would work in automobiles  and buildings which were  the most common place where the professional traveler  who  would  represent  the  bulk  of  Iridium  customers,  would use the same. Global coverage and accessibility  was therefore assured.

(c) Subscribers would be able to access the Iridium System  through compact, hand held small sized phones which  were comparable in size and weight to cellular phones.

(d) The Iridium System would provide a high quality signal  and offer (i) voice (ii) data (iii) fax and (iv) geo-location  services. The System would provide a strong signal with  sufficient  link  margin  (i.e.  a  margin/allowance)  in  excess  of  the  minimum  technical  requirement  for  desired voice quality.)

(e) The Iridium System would be eminently viable and the  investors in the Iridium project would expect to receive  handsome financial gains.

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(f) The Iridium System was a creation of respondent no. 1  who  was  the  world  leader  in  cellular  technology.  Backing of respondent no. 1 ensured its success.

(g) In addition to the benefits of investing in the equity of  Iridium Inc.  large  investors  would  have  the option  to  purchase  the  gateway,  which  would  be  an  inter- connection point between the space based segment of  the  Iridium  System  and  land/terrestrial  network.  Investment  in  gateway  would  be  an  extremely  remunerative and profitable venture.  

10. According to the appellant the aforesaid representations were  

made to individual institutions and entities handling public money  

so as to induce them to believe that Iridium was a company worth  

participating and investing in by purchasing shares and operating  

a gateway.  The officers of  respondent no.1 impressed upon the  

prospective  investors  that  Iridium Project  venture  was  bound to  

succeed.   

11. Relying upon the aforesaid representations the appellant as  

well as the banks and institutions mentioned hereinabove, in good  

faith, collectively invested a sum of US $70 million for purchasing  

equity of Iridium Inc as well as spent a sum of about Rs.150 crores  

in  setting up a gateway at  Deghi  in Pune.   The complaint  then  

proceeds to state that the representations made by respondent no.1  

proved  to  be  false,  dishonest,  fraudulent  and  deceitful.   It  was  

discovered that Iridium System was a complete failure and all the  

material  representations  made,  as  aforesaid,  were  totally  false,  

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dishonest, fraudulent and deceitful, to the knowledge of respondent  

and in particular respondent no.1.   

12. It  is  specifically  pleaded  that  the  System  proved  to  be  a  

complete non starter and technological failure as is evident from  

the followings:

[1] The phones did not work inside buildings or cars and  even under trees.  In real world operating environments,  therefore, they were useless.

[2] The Iridium phones were extremely bulky. [3] The quality of the Iridium signals, even in open areas  

with no obstruction, was extremely poor with frequent  disconnections.

[4] The promised data and fax features were not provided. [5] The system was inferior to competing cellular systems. [6] The system could operate with a single gateway.   

13. It was also alleged that respondent no.1 had full knowledge  

about  the  un-viability  of  the  Iridium  system.  This  can  be  best  

gauged from the fact that the board of directors of respondent no.1  

had in the early 1990’s rejected a proposal that respondent no.1  

itself  fund  the  billions  of  dollars  needed  to  develop  the  Iridium  

system.  Obviously,  therefore,  respondent  no.1  had  no  qualms  

about inducing others to invest their money.

14. It  was  further  averred  in  the  complaint  that  the  entire  

exercise of the respondent no. 1 besides generating money for itself,  

was to experiment with others’ money and at others’ risk (including  

the appellant). The Iridium System and Iridium was therefore used  

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as a research and development tool in order to facilitate and assist  

the respondent no. 1 to develop its expertise in building satellite  

systems  so  that  the  said  expertise  could  be  marketed  by  it  to  

others.   It  was further alleged that market researchers who had  

been commissioned by respondent no.1 had reported that Iridium’s  

target market, the professional business traveler would have little  

interest in using the system. The research group characterized the  

product  as  suitable  only  for  oil  rigs  or  the  desert.  It  had  been  

pointed out that Iridium as then conceived may not address the  

needs of many US based executives who traveled globally and/or  

have offices in divergent or even in remote area. It was pointed out  

that the system limitations of Iridium were too severe to sustain  

interest.

15. The appellant company was further induced to part with a  

sum of Rs. 126 crores for the gateway. The necessity for installation  

of a gateway was a complete fraud. The respondent no.1 knew that  

no  gateway  was  necessary.  The  entire  need  for  a  gateway  was  

dishonestly created to get a license to operate the system in it. The  

Collusy  Group  is  now  operating  the  System  on  a  limited  scale  

through one single gateway, which further establishes the fact that  

there was no need for more than one gateway.

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16. The appellants subsequently learnt that within nine months  

of the huge investment made in Iridium, it applied for bankruptcy  

protection under Chapter 11 of the U.S. Bankruptcy Code. Despite  

best efforts, Iridium could not be revived and ultimately the much  

touted Iridium System, for which US $ 6.5 billion had been paid to  

respondent No.1, was sold for a paltry sum of US $ 25 million. This  

represented  0.4%  of  the  amount  which  was  paid  for  by  the  

appellant and other investors. Consequently, the investment of the  

appellants  and  its  constituent  shareholders  of  approximately  

Rs.500 crores was wiped out and/or completely lost.

17. The appellants, therefore, addressed a notice dated 12th April,  

2001, respondent No.1 calling upon them to make payment of a  

sum of US $ 250 million, being the loss suffered by the appellant as  

also  seeking  punitive  damages.  In  the  aforesaid  notice,  it  was  

clearly mentioned that in the event respondent No.1 failing to make  

the  payment,  criminal  prosecution  would  be  instituted.  The  

respondent No.1 by its reply dated 2nd June, 2001 repudiated his  

liability  and instead made a  claim of  US $ 6,977,989 upon the  

appellant.  Left  with  no  other  alternative,  the  appellants  filed  a  

criminal complaint alleging that respondent no.1 has committed an  

offence  of  cheating  as  defined  under  Section  415  of  the  Indian  

Penal  Code.  On  the  basis  of  the  aforesaid  allegations,  the  

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appellants have filed a complaint before the Judicial Magistrate, Ist  

Class, Khadki Court, Pune charging that respondent No.1 are guilty  

of the offence of criminal conspiracy for cheating the appellant and  

for the offence of cheating committed pursuant to the conspiracy.  

18. The entire material was placed before the Judicial Magistrate.  

Upon consideration of the complaint and upon hearing the counsel  

for  the  appellant,  by  an  order  dated  6th November,  2001  the  

Judicial Magistrate Ist Class, Khadki Court, Pune issued process  

against the respondent No.1 to 7 for offences under section 420  

read with Section 120 IPC. The order reads as under :-

“Read  Complaint  and  verification.  Perused  documents. Heard the advocate Nimbalkar for the  complainant.  It  reveals  that  complainant  is  a  company of which the shares are held by public  financial  institutions,  nationalized  banks  and  public insurance companies i.e. IDDI, ICICI, SBI,  UTI,  GIC,  LIC  etc.  The  investments  made  by  complainant  company  was  raised  out  of  public  savings  and  funds  of  above  noted  public  institutions.  Therefore,  it  reveals  that  this  case  involves  issues  regarding  public  money.  It  is  settled principle that at the stage of  issuance of  process prima facie case is to be considered. After  giving  anxious  though  to  the  averments  in  the  complaint and the documents produced on record,  it  reveals  that  prima  facie  case  is  made  out  to  issue  process.  Hence,  issue  process  against  Accused No.1 to 7 for the offence under Section  420 r/w 120B of IPC.”     

19. Aggrieved  by  the  aforesaid  order,  the  respondents  filed  a  

petition under Article 227 of the Constitution of India and under  11

Section 482 Cr.P.C. seeking quashing of the order issuing process,  

dated 6th November,  2001, passed by the Judicial  Magistrate  Ist  

Class,  Khadki  Court,  Pune.  The grounds as culled out from the  

petition can be summed up as under:-

(i) The  complaint  lacked  the  basic  and  essential  ingredients of the offence of cheating and conspiracy.  

(ii) At best the complaint had set out a civil dispute, subject  to  mandatory  arbitration  which  the  appellant  herein  (Iridium  Telecom  Pvt.  Ltd.)  was  seeking  to  settle  by  adopting a cheaper coercive method.

(iii)   The complaint  suppressed material  facts  which would  have nullified the claim of the appellant based on the  alleged misrepresentations.

(iv) The Complaint does not even prima facie show that any  of  the  representations  made by the  respondent  no.  1  herein (Motorola Inc/ petitioner before the High Court)  were false nor is there any material to even prima facie  establish any dishonest intention ab intio on their part  while making the open offer investment in Iridium Inc.

(v) The Court of JMFC, Pune did not have any territorial  jurisdiction to entertain the complaint.

(vi) The  close  association  of  respondent  no.  1  with  the  Iridium project  was fully disclosed to all the potential  investors in the 1992 PPM prior to their investment. The  1992  PPM  also  made  it  clear  that  each  prospective  investor  should  consult  its  own counsel  and advisers  and  undertake  such  investigation  as  it  deemed  appropriate  before  investing  in  the  shares  of  Iridium  Inc.

(vii)  The risk factors were very prominently highlighted in the  1992 PPM. The 1992 PPM made it clear that there were  many risks in the investment.  The entire  project  was  unique being the first of its kind. The representations  were made to very select strategic investors, who were  experts  in  their  own  fields.  The  appellant  had  the  backing of some of the prominent financial institutions  of the country with the best of expertise in assessing the  arrears of risk capital as well as with admitted technical  advice, support and expertise of Videsh Sanchar Nigam  Limited (VSNL).  

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(viii)  It  was stated that the service of summons was illegal,  invalid and improper. It was further averred that filing  of  the  petition  under  Section  482  should  not  be  construed to be an admission of valid service.  

20.  The  High  Court  granted  ad  interim  relief  staying  the  

proceeding of C.C. No. 81/2001 pending on the file of the learned  

Magistrate, to the respondent no. 1 after the petition under Article  

227 and Section 482 Cr.P.C was filed. The appellant had then filed  

a Special Leave Petition (Crl.)  No. 2093/2003 wherein this Court  

observed as follows:

“The  order  under  challenge  is  an  interlocutory  order,  therefore we are not inclined to interfere with the same.  However, in the facts and circumstances of the case, we  think it appropriate that the petition pending before the  High Court should be disposed of as early as possible.  Therefore, we request the High Court to dispose of the  pending petition of the respondent by the end of July,  2003 and while  so  deciding the High Court  the High  Court should also decide whether such decision of the  High Court will bind those who have not approached the  High  Court  challenging  the  summons  issued  by  the  Trial Court to them.

With these  observations  this  Special  Leave  Petition is  disposed off.”  

21. The High Court by order dated 8th August, 2003 allowed the  

petition  and  quashed  the  order  issuing  process  passed  by  the  

JMFC, Pune. Aggrieved by the said judgment, the appellant have  

filed the present appeal before this Court.

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22. We have heard Mr. Ram Jethmalani, learned senior counsel,  

for the appellant, Mr. Ashok Desai, learned senior counsel for the  

respondent no. 1 and Mr. Parag Tripathy for the Union of India at  

considerable length.

23. The  submissions  made  by  Mr.  Jethmalani  although  very  

elaborate, may be summed up as follows:-

(i) The power to quash a criminal complaint that too at the  stage of cognizance, is an extreme power, which must  be exercised very sparingly and with abundant caution;  that too in the rarest or rare cases.

(ii) In  exercise  of  its  power  under  Section  482,  the  High  Court has to consider the complaint as a whole, without  examining merits of the allegations i.e. genuineness of  the allegations is not to be examined at this stage.

(iii) The complaint is not required to verbatim reproduce the  legal ingredients of the offence. If the necessary factual  foundation is laid in the complaint, proceedings should  not be quashed.

(iv) Quashing of  a complaint is warranted only where the  complaint  is  so  bereft  of  even  basic  facts  which  are  absolutely necessary for making out an offence; that it  would  be  a  miscarriage  of  justice  to  permit  the  proceedings to continue.  

(v) In support of the aforesaid submissions, Mr Jethmalani  has  relied  on the  following  judgments  of  this  Court:-  Smt. Nagawwa Vs. Veeranna  1  ,   Municipal Corporation  of Delhi Vs. Ram Kishan Rohtagi  2  ,   Dhanalakshmi Vs.  R.Prasanna  Kumar  3  ,   State  of  Haryana Vs.  Bhajan  Lal  4    

1  [(1976) 3 SCC 736] 2  [(1983) 1 SCC 1] 3 [1990 (Supp) SCC 686] 4 [(1992) Supp. (1) SCC 335]

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24. Mr. Jethmalani further submitted that the judgment of the  

High Court is contrary to all known principles on the basis of which  

an order issuing process can be quashed. He invited our attention  

to  the  detailed  pleadings  in  the  complaint;  the  Stock  Purchase  

Agreements,  Gateway Equipment  Purchase Agreement  and From  

S-1  etc.  According  to  Mr.  Jethmalani,  the  documents  were  

subjected to meticulous analysis by the High Court at the instance  

of  the  respondent.   On a  wholly  erroneous interpretation of  the  

aforesaid documents, the High Court concluded that the allegations  

made in the complaint even if  they are taken on the face value,  

disclosed  only  civil  liability.   The  High Court  was  unnecessarily  

influenced by the submission that the “Risk Factors” had been duly  

pointed out to the prospective investors including the appellants.  

These  matters  were  to  be  examined  by  Court  of  competent  

jurisdiction  at  the  appropriate  time.   The  allegations  could  be  

proved or disproved on the basis of the evidence led by the parties.  

The High Court, according to Mr. Jethmalani, failed to appreciate  

that  the  1992 PPM was in  the  nature  of  a  deemed prospectus.  

Therefore  whilst  issuing  the  aforesaid  PPM,  the  promoter  was  

required to make a true and full disclosure of all the relevant facts.  

This duty is imposed on the promoter under Section 3 and 64 of  

the Companies Act, 1956.  The statements made in the PPM as also  

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in  the  representations  made to  the  high ranking  officials  of  the  

prospective investors including the appellants, have been proved to  

be incorrect and misleading. According to Mr. Jethmalani, the legal  

position on this issue is quite clear and placed reliance on:-  The  

Directors &c.,  of the Central  Railway Company of Venezuela  

Vs.  Joseph  Kisch5,  New  Brunswick  and  Canada  Railway  

Company Vs.  Muggeridge6,  Redgrave Vs.  Hurd7,  Aarons Reefs  

Limited Vs. Twiss  8  .

25. According  to  Mr.  Jethmalani  dishonest  intention  of  the  

respondent is evident from the fact that the proposal to invest in  

the Iridium system which was taken to the Board of Directors of  

the  respondent  Motorola,  was  not  accepted.   The  market  

researchers commissioned by Motorola had in fact clearly stated  

that the professional business traveler would have little interest in  

the system.  It had been characterized as suitable only for oil rigs  

or  deserts.   Mr.  Jethmalani  reiterated  that  the  respondents  

deliberated  painted  a  very  rosy  picture.   They  had  promised  a  

global link from any place on earth.  The falsity of such tall claims  

is evident from the fact that the phone would not operate under a  

tree  or  in  a  building.   It  proved  to  be  utterly  useless.   Mr.  

5  [1867 English and Irish Appeals (Vol. II), 99],  6  [(1860)1 Dr. & Sm. 381] 7  [(1881) 20 Ch. D at p.13] 8  [1896 Appeal Cases 273 (House of Lords)]

16

Jethmalani then submitted that the value, which may be placed on  

the  disclaimers  relied  upon  by  the  respondent,  could  only  be  

judged after a full fledged trial.  At best, the disclaimers would be a  

defence.  They would not be sufficient to absolve the respondents  

from criminal liability.   

26. It was then submitted by Mr. Jethmalani that the High Court  

committed a serious error of law in concluding that the respondent  

being  a  corporation  was  incapable  of  committing  the  offence  of  

cheating.  He emphasised that by now, it is settled in almost all  

jurisdictions  of  the  world  governed  by  the  rule  of  law  that  

companies can be prosecuted for  certain criminal  offences.   The  

offences for which companies can be criminally prosecuted are not  

limited only to the specific provisions made in the Income Tax Act,  

The  Essential  Commodities  Act,  The  Prevention  of  Food  

Adulteration Act.

Mr. Jethmalani relied on Kalpnath Rai Vs. State  9  ,  Asstt. Commr.  

Vs.  Velliappa Textiles Ltd  10  .,   and Standard Chartered Bank Vs.  

Directorate  of  Enforcement  11  .  It  was  finally  submitted  by  Mr.  

Jethmalani that the High Court has converted itself into the Court  

of a Judicial Magistrate and conducted an inquiry under Section  

202, 244 and 245.   

9  [(1997) 8 SCC 732] 10  [(2003) 11 SCC 405] 11  [(2005) 4 SCC 405]

17

27. Mr.  Parag  Tripathi,  the  learned  Addl.  Solicitor  General  

submitted that the High Court was unnecessarily influenced by the  

fact that the service has not been duly affected on the respondent.  

This did not lead to the only conclusion that the defective service  

was a deliberate attempt to enable the appellants to adopt coercive  

process against the respondent.  It is further submitted by Learned  

ASG that the High Court wrongly concluded that the highlighting of  

the  risk  factors  would  absolve  the  respondents  of  the  criminal  

liability.  According to the ASG, the mere existence of an arbitration  

clause,  does  not  lead  to  the  conclusion  that  there  can  be  no  

criminal liability in such cases. In support of the submissions, the  

ASG relied on Trisuns Chemical Industry Vs. Rajesh Agarwal  12  , It  

is  further  submitted  that  the  respondent  company  cannot  hide  

behind the defence that the company is incapable of possessing the  

necessary mens rea for commission of the offence of cheating. In  

support  of  the  submissions,  he  relied  upon  the  following  

judgments:- Asstt.  Commr. Vs.  Velliappa  Textiles  Ltd  13  .,  ,  

Standard Chartered Bank Vs. Directorate of Enforcement  14  .   

28. We may now note the submission of Mr. Ashok Desai.  The  

learned senior counsel at the very out set, submitted that even the  

basic facts have not been placed before this Court.  According to  12  [(1999) 8 SCC 686] 13  Supra 14  Supra

18

him there were three things which have to be noted.  Firstly, no  

representation was made by Motorola as such. Secondly, Iridium  

Inc  was  a  company  controlled  by  strategic  investors.  Thirdly,  

representations  were  not  of  existing  facts  but  future  projections  

wherein  every  possible  warning  was  given.   According  to  the  

learned senior counsel, the most important aspect of the case are  

that:-

(i) We are dealing with a prospectus.

(ii) We  are  dealing  with  technological  development.  

Therefore, it can succeed or it can fail.  

(iii)      Then again we are dealing with feasibility.

29. Mr. Desai  submitted that the Iridium system was and is a  

technological  success.   It  is  being  used  in  global  aerospace  

programmes and defence departments of different countries.  One  

of  its  major  customers  is  the  Indian  Defence  Forces.   Merely  

because the satellite mobile system is not a commercial success is  

not sufficient to establish that the respondent company had any  

dishonest  intention.  Mobile  phones  seem to  have  overtaken  the  

entire market. Even the satellite phones and used when the mobile  

phone service is not available. That is particularly so in remote and  

inaccessible  terrain.  He  then  submitted  that  while  seeking  

19

investments from strategic investors, the 1992 PPM contained all  

the necessary information. The statements in the PPM related to  

future  projections.   They  were  based  on  certain  assumptions.  

Merely because the expectations of the appellant were not realized,  

it  would not be sufficient to establish dishonest intention of  the  

respondents.  The representations were made to strategic investors.  

These  were  individuals,  firms  and  entities,  who were  experts  in  

their  field.   They  had been  duly  forewarned  of  the  risk  factors.  

Therefore,  the  High  Court  rightly  concluded  that  the  complaint  

even  if  it  is  accepted  in  toto,  would  not  disclose  the  necessary  

ingredients to establish criminal liability.  Mr. Desai reiterated that  

the  risk  factors  had  been  prominently  displayed  at  the  

commencement of the PPM.  In order to ensure that the investors  

were well aware of the risks involved, they were invited to be guided  

by the counsel or their own experts.  Each investor had therefore  

accepted and acknowledged that in making the investments, they  

had relied only on the advice of their own experts.  Mr. Desai then  

submitted that the High Court correctly relied upon the documents  

placed on record by the respondent.  These were documents which  

were required to be placed before the Magistrate by the appellants.  

They  were  deliberately  withheld  to  mislead  the  Magistrate  into  

issuing process. This according to him would amount to playing a  

20

fraud on court. He then submitted that in spite of the fact that the  

respondent had not been duly served in order to avoid incalculable  

damage  to  its  image,  reputation  and  business  prospects.   The  

respondent was compelled to move to the High Court for nipping in  

the bud a wholly  frivolous  and unjustified  criminal  prosecution.  

The High Court was also justified in relying on the documents as  

the  appellants  had  relied  on  the  reply  to  the  notice  before  the  

Magistrate.  They had, however not placed on the record the notice,  

and the accompanying documents. The High Court also correctly  

stated the legal position with regard to the inability of a company to  

possess the necessary mens rea for the commission of a criminal  

offence.  According to Mr. Desai, the facts pleaded would disclose  

only civil liability at best.  It is submitted by him that it was not  

necessary for the High Court to permit the matter to proceed any  

further.  The High Court on a correct interpretation of the various  

clauses of the 1992 PPM and the Stock Purchase Agreements of  

1993 and 1994, concluded that it was a case of pure and simple  

civil  liability.   It  was further submitted that the High Court was  

within its jurisdiction to look at all the documents including the  

documents which were not on record.  The power of the High Court  

under  Section  482  Cr.P.C  is  much  wider  than  the  revisional  

jurisdiction of the High Court Cr.P.C under Section 401 Cr.P.C.  In  

21

support  of  the  submissions,  the  learned  counsel  has  relied  on  

Madhavrao  Jiwajirao  Scindia  and  Others Vs.  Sambhajirao  

Chandrojirao Angre and Others  15   State of Orissa Vs.  Debendra  

Nath  Padhi  16   and  M.N.  Ojha  and  Others Vs.  Alok  Kumar  

Srivastav and Another  17  .

30. Mr. Desai also pointed out that the representations were not  

made in the year 1992 as the appellant was not incorporated till  

1994, therefore, it was impossible to have made any representation  

to  the  complainant.   Even  otherwise,  the  representations  were  

accompanied  by  prominent  risk  factors.   The  representations  

related to future projections and expectations.  This is patent from  

the fact that although the representations were made in the year  

1992-93, the system itself  was not commissioned till  1998.  The  

High Court,  according  to  Mr.  Desai,  correctly  relied  on the  risk  

factors.  This is especially important since one Mr. S.H. Khan had  

been nominated by the appellant on the Board of Directors of the  

respondent.  Apart from being a Director, he was a member of the  

Finance  Committee  and  Related  Party  Contracts  Committee  of  

Iridium Inc.  Therefore, the appellants were well aware of the risk  

factors.

15  [(1988) 1 SCC 692] 16  [(2005) 1 SCC 568] 17  [(2009) 9 SCC 682]

22

31. We have  considered  the  submissions  made by  the  learned  

senior  counsel.   A  bare  perusal  of  the  submissions  would  be  

sufficient to amply demonstrate that this cannot be said to be an  

‘open and shut’ case for either of the parties.  There is much to be  

said on both sides.  The entire scenario painted by both the sides is  

circumscribed by ‘ifs’ and ‘buts’.  A mere reading of the 1992 PPM  

would not be sufficient to conclude that the entire information has  

been given to the prospective investors.  Similarly, merely because  

there may have been some gaps in the information provided in the  

PPM would not be sufficient to conclude that the respondents have  

made deliberate  misrepresentations.   In  such circumstances,  we  

have to examine whether it was appropriate for the High Court to  

exercise its jurisdiction under Section 482 Cr.P.C.  to quash the  

proceedings at the stage when the Magistrate had merely issued  

process against the respondents.

32. The contours within which the High Court would exercise its  

jurisdiction  to  quash  the  criminal  proceeding  has  been  dilated  

upon, and well defined by this Court in a catena of judgments. We  

may make a reference here only to a few representative cases.  

In the case of Smt. Nagawwa Vs. Veeranna18 considering the limits  

within  which  the  Magistrate  is  required  to  conduct  an  inquiry  

18  Supra 23

under  Section  202  of  the  Cr.P.C.,  this  Court  observed  that  the  

scope of such inquiry is (Para 4) “extremely limited – limited only to  

the ascertainment of the truth or falsehood of the allegations made  

in the complaint- (i) on the materials placed by the complainant  

before the Court; (ii) for the limited purpose of finding out whether  

a prima facie case for issue of process has been made out; and (iii)  

for  deciding  the  question  purely  from  the  point  of  view  of  the  

complainant without at all adverting to any defence that the case  

may  have.   In  fact  it  is  well  settled  that  in  proceedings  under  

Section 202, the accused has got absolutely no locus standi and is  

not  entitled  to  be  heard  on  the  question  whether  the  process  

should be issued against him or not”.   It  has been further held  

(Para 5) as follows:-

  “……….Once the Magistrate has exercised his discretion  it  is  not  for  the  High  Court,  or  even  this  Court,  to  substitute its own discretion for that of the Magistrate  or to examine the case on merits with a view to find out  whether  or  not  the  allegations  in  the  complaint,  if  proved,  would  ultimately  end  in  conviction  of  the  accused.  These  considerations,  in  our  opinion,  are  totally  foreign  to  the  scope  and  ambit  of  an  inquiry  under Section 202 of  the Code of  Criminal  Procedure  which culminates into an order under Section 204 of  the  Code.  Thus  it  may  be  safely  held  that  in  the  following  cases  an  order  of  the  Magistrate  issuing  process  against  the  accused  can  be  quashed  or  set  aside:  (1) where the allegations made in the complaint or the  statements of the witnesses recorded in support of the  same taken at their face value make out absolutely no  case  against  the  accused  or  the  complaint  does  not  

24

disclose the essential ingredients of an offence which is  alleged against the accused; (2)  where  the  allegations  made  in  the  complaint  are  patently absurd and inherently improbable so that no  prudent person can ever reach a conclusion that there  is sufficient ground for proceeding against the accused; (3) where the discretion exercised by the Magistrate in  issuing process is capricious and arbitrary having been  based either on no evidence or on materials which are  wholly irrelevant or inadmissible; and (4) where the complaint suffers from fundamental legal  defects,  such  as,  want  of  sanction,  or  absence  of  a  complaint by legally competent authority and the like.”

The aforesaid examples are of course purely illustrative and provide  

sufficient guidelines to indicate the contingencies where the High  

Court can quash proceedings.   

This Court  in the case of  Kurukshetra University Vs.  State of  

Haryana  19  ,   again stated the principle regarding the exercise of the  

inherent powers conferred by Section 482 Cr.P.C. Chandrachud J.  

speaking for the Bench observed as follows:  

“It  ought to be realised that inherent powers do  not  confer  an arbitrary  jurisdiction  on the  High  Court to act according to whim or caprice.  That  statutory power has to be exercised sparingly, with  circumspection and in the rarest of rare cases.”

In  Municipal  Corporation of  Delhi Vs. Ram Kishan Rohtagi20  

this Court reiterated the legal position with regard to the limits of  

the power under Section 482, as stated in the case of Raj Kapoor  19  [(1977) 4 SCC 451] 20  supra

25

and  Others Vs. State21 wherein   Krishna  Iyer,  J.,  observed  as  

follows:-

“Even so,  a  general  principle  pervades this  branch of  law when a specific provision is made : easy resort to  inherent  power  is  not  right  except  under  compelling  circumstances.  Not that there is absence of jurisdiction  but  that  inherent  power  should  not  invade  areas  set  apart for specific power under the same Code.”

This Court also reiterated the four propositions of law which were  

said to be illustrative in the case of Smt. Nagawwa Vs. Veeranna22.  

It was further held as follows:-

“10.  It is, therefore, manifestly clear that proceedings  against an accused in the initial stages can be quashed  only  if  on  the  face  of  the  complaint  or  the  papers  accompanying the same, no offence is constituted.  In  other words, the test is that taking the allegations and  the  complaint  as  they  are,  without  adding  or  subtracting anything, if no offence is made out then the  High Court will be justified in quashing the proceedings  in  exercise  of  its  powers  under  Section  482  of  the  present Code.  

The aforesaid proposition of law was again reiterated by this Court  

in  the  case  of  Madhavrao  Jiwajirao  Scindia  and  Others Vs.  

Sambhajirao  Chandrojirao  Angre  and  Others23in  the  following  

words:-

“The  legal  position  is  well  settled  that  when  a  prosecution at the initial stage is asked to be quashed,  the test to be applied by the court is as to whether the  

21  [(1980) 1 SCC 43] 22   supra 23  supra

26

uncontroverted  allegations  as  made  prima  facie  establish the offence. It is also for the court to take into  consideration  any  special  features  which  appear  in  a  particular case to consider whether it is expedient and  in  the  interest  of  justice  to  permit  a  prosecution  to  continue. This is so on the basis that the court cannot  be utilised for  any oblique purpose and where in the  opinion of the court chances of an ultimate conviction  are bleak and, therefore, no useful purpose is likely to  be  served  by  allowing  a  criminal  prosecution  to  continue, the court may while taking into consideration  the special  facts  of  a  case also quash the proceeding  even though it may be at a preliminary stage.”

The aforesaid ratio of law was further elaborately discussed  in the  

case of  State of Haryana Vs. Bhajan Lal24,  wherein this court  

had formulated certain principles pertaining to the exercise of such  

power in the following words:-  

“102.   In  the  backdrop  of  the  interpretation  of  the  various relevant provisions of the Code under Chapter  XIV  and  of  the  principles  of  law  enunciated  by  this  Court in a series of decisions relating to the exercise of  the  extraordinary  power  under  Article  226  or  the  inherent powers under Section 482 of the Code which  we have extracted and reproduced above,  we give the  following  categories  of  cases  by  way  of  illustration  wherein such power could be exercised either to prevent  abuse of the process of any court or otherwise to secure  the ends of justice, though it may not be possible to lay  down  any  precise,  clearly  defined  and  sufficiently  channelised and inflexible guidelines or rigid formulae  and to give an exhaustive list of myriad kinds of cases  wherein such power should be exercised. (1) Where  the  allegations  made  in  the  first  

information report or the complaint, even if  they  are taken at their face value and accepted in their  entirety do not prima facie constitute any offence  or make out a case against the accused.

(2) Where  the  allegations  in  the  first  information  report and other materials, if any, accompanying  the  FIR  do  not  disclose  a  cognizable  offence,  justifying an investigation by police officers under  

24  Supra 27

Section 156(1) of the Code except under an order  of  a  Magistrate  within  the  purview  of  Section  155(2) of the Code.

(3) Where the uncontroverted allegations made in the  FIR  or  complaint  and  the  evidence  collected  in  support  of  the  same  do  not  disclose  the  commission of any offence and make out a case  against the accused.

(4) Where, the allegations in the FIR do not constitute  a  cognizable  offence  but  constitute  only  a  non- cognizable offence, no investigation is permitted by  a police officer without an order of a Magistrate as  contemplated under Section 155(2) of the Code.

(5) Where  the  allegations  made  in  the  FIR  or  complaint  are  so  absurd  and  inherently  improbable  on  the  basis  of  which  no  prudent  person can ever reach a just conclusion that there  is  sufficient  ground  for  proceeding  against  the  accused.

(6) Where there is an express legal bar engrafted in  any of the provisions of the Code or the concerned  Act  (under  which  a  criminal  proceeding  is  instituted)  to  the institution  and continuance of  the proceedings and/or where there is a specific  provision  in  the  Code  or  the  concerned  Act,  providing efficacious redress for  the grievance of  the aggrieved party.

(7) Where  a  criminal  proceeding  is  manifestly  attended  with  mala  fide  and/or  where  the  proceeding  is  maliciously  instituted  with  an  ulterior  motive  for  wreaking  vengeance  on  the  accused  and  with  a  view  to  spite  him  due  to  private and personal grudge.

103. We also give a note of caution to the effect that the  power  of  quashing  a  criminal  proceeding  should  be  exercised very sparingly and with circumspection and  that too in the rarest of rare cases; that the court will  not be justified in embarking upon an enquiry as to the  reliability or genuineness or otherwise of the allegations  made  in  the  FIR  or  the  complaint  and  that  the  extraordinary  or  inherent  powers  do  not  confer  an  arbitrary jurisdiction on the court to act according to its  whim or caprice.”

28

The  aforesaid  ratio  of  law  was  further  reiterated  in  the  case  of  

Janata Dal Vs. H.S. Chowdhary  25   in the following words:  

“132. The criminal courts are clothed with inherent power to  make  such  orders  as  may  be  necessary  for  the  ends  of  justice.  Such  power  though  unrestricted  and  undefined  should  not  be  capriciously  or  arbitrarily  exercised,  but  should be exercised in appropriate cases, ex debito justitiae  to do real and substantial justice for the administration of  which alone the courts exist. The powers possessed by the  High Court under Section 482 of the Code are very wide and  the very plenitude of the power requires great caution in its  exercise. Courts must be careful to see that its decision in  exercise of this power is based on sound principles.

134. This Court in  Dr Raghubir  Sharan Vs.  State  of  Bihar  had an occasion to examine the extent of inherent power of  the  High Court  and its  jurisdiction  when to  be  exercised.  Mudholkar, J. speaking for himself and Raghubar Dayal, J.  after referring to a series of decisions of the Privy Council  and of the various High Courts held thus: “...  [E]very  High  Court  as  the  highest  court  exercising  criminal jurisdiction in a State has inherent power to make  any order for the purpose of securing the ends of justice ....  Being an extraordinary power it will, however, not be pressed  in  aid  except  for  remedying  a  flagrant  abuse  by  a  subordinate court of its powers ....”

137. This inherent power conferred by Section 482 of  the  Code  should  not  be  exercised  to  stifle  a  legitimate  prosecution.  The High Court  being the  highest  court  of  a  State  should  normally  refrain  from  giving  a  premature  decision  in  a  case  wherein  the  entire  facts  are  extremely  incomplete and hazy,  more so when the evidence has not  been collected and produced before the Court and the issues  involved whether factual or legal are of great magnitude and  cannot be seen in their true perspective without sufficient  material. Of course, no hard and fast rule can be laid down  in regard to the cases in which the High Court will exercise  its extraordinary jurisdiction of quashing the proceedings at  any stage……”

25  [(1992) 4 SCC 305] 29

Adverting to the scope of the jurisdiction of the High Court under  

Section  482,  this  Court  in  the  case  of  State  of  Orissa Vs.  

Debendra Nath Padhi  26     again reiterated as follows:-

“It  is  evident  from  the  above  that  this  Court  was  considering the rare  and exceptional  cases  where  the  High Court may consider unimpeachable evidence while  exercising jurisdiction for quashing under Section 482  of the Code. In the present case, however, the question  involved is not about the exercise of jurisdiction under  Section 482 of the Code where along with the petition  the accused may file unimpeachable evidence of sterling  quality and on that basis seek quashing, but is about  the right claimed by the accused to produce material at  the stage of framing of charge.”

Again upon a very elaborate examination of the powers possessed  

by the High Court under Section 482 Cr.P.C., this Court in the case  

of Inder Mohan Goswami and Anr. Vs.  State of Uttaranchal and  

Ors.  27   very clearly observed that the aforesaid powers are very wide  

and the very plentitude of the power requires great caution in its  

exercise.   The Court  must be careful  to  see that its  decision in  

exercise of this power is based on sound principles.  It is clearly  

observed  that the High Courts have been invested with inherent  

powers, both in civil  and criminal matters, to achieve a salutary  

public purpose. A Court proceeding ought not to be permitted to  

degenerate into a weapon of  harassment or persecution.  At the  

26  [(2005) 1 SCC 568] 27  [(2007) 12 SCC 1]

30

same time, it is also observed that the inherent power should not  

be  exercised  to  stifle  a  legitimate  prosecution.   The  High  Court  

should normally refrain from giving a prima facie decision in a case  

where all  the facts are incomplete and hazy,  more so,  when the  

evidence has not been collected and produced before the Court and  

the issues involved, whether factual or legal are of such magnitude  

that they cannot be seen in their true perspective without sufficient  

material.  Reiterating the observations made by this Court in the  

case of  Indian Oil Corporation Vs.  NEPC India Ltd. and Ors28,  

the Court again cautioned about a growing tendency in business  

circles  to  convert  purely  civil  disputes  into  criminal  cases.   The  

Court reiterated that any effort to settle civil disputes and claims,  

which do not  involve any criminal  offence,  by applying pressure  

through  criminal  prosecution  should  be  deprecated  and  

discouraged.   

The limits within which the jurisdiction under Section 482 can be  

exercised was again precisely stated in the case of Divine Retreat  

Centre Vs. State of Kerala  29  ,   as follows:  

“In our view, there is nothing like unlimited arbitrary  jurisdiction conferred on the High Court under Section  482  of  the  Code.  The  power  has  to  be  exercised  sparingly, carefully and with caution only where such  exercise is justified by the tests laid down in the section  

28  [(2006) 6 SCC 736] 29  [(2008) 3 SCC 542]

31

itself. It is well settled that Section 482 does not confer  any new power on the High Court but only saves the  inherent  power which the Court  possessed before  the  enactment of the Code. There are three circumstances  under which the inherent jurisdiction may be exercised,  namely, (  i  ) to give effect to an order under the Code, (  ii  )    to  prevent  abuse  of  the  process  of  court,  and  (  iii  )  to    otherwise secure the ends of justice.”  

In the case of  M.N. Ojha and Others Vs.  Alok Kumar Srivastav  

and Another  30  , this Court was dealing with a situation where the  

SDJM  had  issued  process  mechanically  and  without  any  

application of mind.  Furthermore, the High Court had dismissed a  

petition  for  quashing the  order  of  SDJM by  a  cryptic  and non-

speaking order. In such circumstances, this Court observed :-

“25.   Had the learned SDJM applied his  mind to the  facts and circumstances and sequence of events and as  well as the documents filed by the complainant himself  along  with  the  complaint,  surely  he  would  have  dismissed the complaint.  He would have realised that  the complaint was only a counterblast to the FIR lodged  by the Bank against the complainant and others with  regard to the same transaction.

27. The case on hand is a classic illustration of non- application  of  mind  by  the  learned  Magistrate.  The  learned Magistrate did not scrutinise even the contents  of  the  complaint,  leave  aside  the  material  documents  available on record. The learned Magistrate truly was a  silent spectator at the time of recording of preliminary  evidence before summoning the appellants.

28.  The  High  Court  committed  a  manifest  error  in  disposing of the petition filed by the appellants under  Section 482 of the Code without even adverting to the  

30  supra 32

basic  facts  which  were  placed  before  it  for  its  consideration.

29. It is true that the Court in exercise of its jurisdiction  under Section 482 of  the Code of  Criminal  Procedure  cannot go into the truth or otherwise of the allegations  and appreciate the evidence if any available on record.  Normally,  the  High Court  would  not  intervene  in  the  criminal proceedings at the preliminary stage/when the  investigation/enquiry is pending.

30.  Interference  by  the  High  Court  in  exercise  of  its  jurisdiction under Section 482 of the Code of Criminal  Procedure  can  only  be  where  a  clear  case  for  such  interference  is  made  out.  Frequent  and  uncalled  for  interference even at the preliminary stage by the High  Court may result in causing obstruction in progress of  the inquiry in a criminal case which may not be in the  public  interest.  But at the same time the High Court  cannot refuse to exercise its jurisdiction if the interest of  justice so required where the allegations made in the  FIR  or  complaint  are  so  absurd  and  inherently  improbable on the basis of which no fair minded and  informed  observer  can  ever  reach  a  just  and  proper  conclusion as to the existence of sufficient grounds for  proceeding.  In  such  cases  refusal  to  exercise  the  jurisdiction  may  equally  result  in  injustice  more  particularly  in  cases  where  the  complainant  sets  the  criminal law in motion with a view to exert pressure and  harass  the  persons  arrayed  as  accused  in  the  complaint.”

33. Keeping in view the aforesaid principles, we may now examine  

as to whether the High Court has adopted the correct  approach  

while exercising its inherent power under Section 482 Cr.P.C.  The  

High  Court  notices  in  extenso the  facts  as  narrated  above.  

Thereafter the High Court notices the submissions made on behalf  

of  the  parties.  It  was  observed  by  the  High  Court  that  a  

company/corporation will not have the mens rea for commission of  33

the offence under Section 415 IPC.   The High Court relied on the  

observations made by this Court in the case of Kalpanath Rai Vs.  

State  31    and distinguished the judgment in the case of M.V. Javali  

Vs. Mahajan Borewell & Co.  32  ,  .  It is held that a company being a  

juridical person cannot have the intention to deceive, which is the  

necessary mens rea for the offence of cheating. According to the  

High court, although a company can be a victim of deception, it can  

not be the perpetrator of deception. It can only be a natural person  

who  is  capable  of  having  mens  rea  to  commit  the  offence.  

According to the High Court, the same reasoning would also apply  

in respect of the offence of conspiracy which involves a guilty mind  

to do an illegal thing.  

34. The  judgments  relied  upon  by  the  complainant  are  

distinguished  by  the  High  Court,  as  they  pertain  to  special  

provisions contained in different statutes such as, Income Tax Act,  

Essential Commodities Act, Food Adulteration Act and TADA Act.  

It  is  noticed  that  in  Kalpanath  Rai Vs.  State  33   this  Court  was  

concerned with the provisions of TADA Act.  The High Court was  

further of the opinion that Indian Penal Code does not contain any  

provision  similar  to  the  aforesaid  acts.   Since  the  offence  of  

cheating under Section 415 and the offence of conspiracy under  31  [(1997) 8 SCC 732] 32  [(1997) 8 SCC 72] 33  Supra

34

Section 120B can only be committed by a natural person, the word  

“whoever”  cannot  include  in  its  sweep,  a  juridical  person like  a  

company.  The High Court notices the judgment of  the Calcutta  

High  Court  in  the  case  of  A.K.  Khosla Vs.  T.S.  Venkatesan  34    

wherein  it  was  held  that  there  are  two  tests  in  respect  of  

prosecution of a corporate body i.e. first being the test of mens era  

and  the  other  being  the  mandatory  sentence  of  imprisonment.  

However, no opinion has been expressed there upon by the High  

Court.  In view of the aforesaid conclusions, the High Court has  

held  that  the  complaint  would  not  be  maintainable  against  the  

respondent.   

35. We  are  of  the  considered  opinion  that  there  is  much  

substance in the submission of Mr. Jethmalani that virtually in all  

jurisdictions  across  the  world  governed  by  the  rule  of  law,  the  

companies  and corporate  houses  can no  longer  claim immunity  

from criminal prosecution on the ground that they are incapable of  

possessing the necessary mens rea for the commission of criminal  

offences.  The legal position in England and the United States has  

now crystallized to leave no manner of  doubt that a corporation  

would be liable for crimes of intent.  In the year 1909, the United  

34  [1992 Crl. L.J. 1448] 35

States Supreme Court in New York Central & Hudson River Railroad  

Co. Vs. United States  35  , stated the principle thus:-   

“It  is  true that there are some crimes which, in their  nature, cannot be committed by corporations. But there  is a large class of offences, of which rebating under the  federal  statutes is  one,  wherein the crime consists  in  purposely doing the things prohibited by statute. In that  class of crimes we see no good reason why corporations  may not be held responsible for and charged with the  knowledge and purposes of their agents, acting within  the authority  conferred upon them.  If  it  were  not  so,  many  offences  might  go  unpunished  and  acts  be  committed in violation of law where, as in the present  case,  the  statute  requires  all  persons,  corporate  or  private,  to refrain from certain practices,  forbidden in  the interest of public policy.

* * * We see no valid objection in law, and every reason in  public policy, why the corporation, which profits by the  transaction,  and can only act  through its  agents and  officers, shall be held punishable by fine because of the  knowledge  and  intent  of  its  agents  to  whom  it  has  entrusted  authority  to  act  in  the  subject-matter  of  making and fixing rates  of  transportation,  and whose  knowledge and purposes may well be attributed to the  corporation  for  which  the  agents  act.  While  the  law  should have regard to the rights of all, and to those of  corporations  no  less  than  to  those  of  individuals,  it  cannot shut its eyes to the fact that the great majority of  business transactions in modern times are conducted  through these bodies, and particularly that inter-State  commerce is almost entirely in their hands, and to give  them immunity from all punishment because of the old  and exploded doctrine that a corporation cannot commit  a  crime would  virtually  take away the only  means of  effectually controlling the subject-matter and correcting  the abuses aimed at.”

The  aforesaid  sentiment  is  reiterated  in  the  19  American  

Jurisprudence 2d para 1434 in the following words:-  

35  [53 L Ed 613] 36

“Lord Holt is reported to have said (Anonymous, 12 Mod  559,  88 Eng Reprint  1164)  that  ‘a  corporation  is  not  indictable, but the particular members of it are’. On the  strength  of  this  statement  it  was  said  by  the  early  writers that a corporation is not indictable at common  law, and this view was taken by the courts in some of  the  earlier  cases.  The broad general  rule  is  now well  established,  however,  that  a  corporation  may  be  criminally  liable.  This  rule  applies  as  well  to  acts  of  misfeasance  as  to  those  of  nonfeasance,  and  it  is  immaterial  that  the  Act  constituting  the  offence  was  ultra vires. It has been held that a de facto corporation  may be held criminally liable. As  in  case  of  torts  the  general  rule  prevails  that  a  corporation may be criminally liable for the acts of an  officer  or  agent,  assumed  to  be  done  by  him  when  exercising authorized powers, and without proof that his  act  was  expressly  authorized  or  approved  by  the  corporation.  A  specific  prohibition  made  by  the  corporation to its agents against violation of the law is  no defence. The rule has been laid down, however, that  corporations are liable, civilly or criminally, only for the  acts of their agents who are authorized to act for them  in  the  particular  matter  out  of  which  the  unlawful  conduct with which they are charged grows or in the  business to which it relates.”

Again in 19 Corpus Juris Secundum, para 1363 it has been observed  

as under:-

“A corporation may be criminally liable for crimes which  involve  a  specific  element  of  intent  as  well  for  those  which do not, and, although some crimes require such a  personal,  malicious  intent,  that  a  corporation  is  considered incapable of committing them, nevertheless,  under the proper circumstances the criminal intent of  its agent may be imputed to it so as to render it liable,  the requisites of such imputation being essentially the  same as those required to impute malice to corporations  in civil actions.”

37

36. The Courts in England have emphatically rejected the notion  

that a body corporate could not commit a criminal offence which  

was an outcome of an act of will needing a particular state of mind.  

The aforesaid notion has been rejected by adopting the doctrine of  

attribution and imputation.  In other words, the criminal intent of  

the “alter ego” of the company / body corporate, i.e., the person or  

group of person that guide the business of the company, would be  

imputed to the corporation.  It may be appropriate at this stage to  

notice the observations made by the MacNaghten, J. in the case of  

Director  of  Public  Prosecutions     Vs.  Kent  and  Sussex  

Contractors Ltd.  36  :

“A body corporate is a ‘person’ to whom, amongst the  various attributes it may have, there should be imputed  the attribute of a mind capable of knowing and forming  an intention — indeed it is much too late in the day to  suggest  the  contrary.  It  can  only  know  or  form  an  intention through its human agents, but circumstances  may be such that the knowledge of the agent must be  imputed  to  the  body  corporate.  Counsel  for  the  respondents says that, although a body corporate may  be capable of having an intention, it is not capable of  having a criminal intention. In this particular case the  intention was the intention to deceive. If, as in this case,  the responsible agent of a body corporate puts forward a  document knowing it to be false and intending that it  should  deceive,  I  apprehend,  according  to  the  authorities  that Viscount  Caldecote,  L.C.J.,  has cited,  his  knowledge  and intention  must  be  imputed to  the  body corporate.”

36  [1944 1 All ER 119] 38

The principle has been reiterated by Lord Denning in the case of  

H.L.Bolton (Engg.) Co. Ltd. Vs. T.J.Graham & Sons  37     in the  

following words:-  

“A company may in many ways be likened to a human  body.  They  have  a  brain  and  a  nerve  centre  which  controls what they do. They also have hands which hold  the tools and act in accordance with directions from the  centre.  Some of  the  people  in  the  company are mere  servants and agents who are nothing more than hands  to do the work and cannot be said to represent the mind  or  will.  Others  are  directors  and  managers  who  represent the directing mind and will of the company,  and control  what they do. The state of  mind of  these  managers is the state of mind of the company and is  treated by the law as such. So you will find that in cases  where the law requires personal fault as a condition of  liability  in  tort,  the  fault  of  the  manager  will  be  the  personal  fault  of  the company.  That is  made clear  in  Lord Haldane’s  speech in  Lennard’s  Carrying  Co.  Ltd.  Vs.  Asiatic  Petroleum Co. Ltd. (AC at pp. 713, 714). So  also in the criminal law, in cases where the law requires  a guilty mind as a condition of a criminal offence, the  guilty mind of the directors or the managers will render  the company themselves guilty.”

37. The  aforesaid  principle  has  been  firmly  established  in  

England  since  the  decision  of  House  of  Lords  in Tesco  

Supermarkets  Ltd. Vs.  Nattrass38. In  stating  the  principle  of  

corporate  liability  for  criminal  offences,  Lord  Reid  made  the  

following statement of law:-

“I  must  start  by  considering  the  nature  of  the  personality  which by a fiction the law attributes to  a  corporation. A living person has a mind which can have  knowledge  or  intention  or  be  negligent  and  he  has  hands  to  carry  out  his  intentions.  A  corporation  has  

37  [1956 3 All ER 624] 38  [1971 All ER 127].

39

none  of  these;  it  must  act  through  living  persons,  though not always one or the same person. Then the  person  who  acts  is  not  speaking  or  acting  for  the  company.  He is acting as the company and his mind  which  directs  his  acts  is  the  mind  of  the  company.  There is no question of the company being vicariously  liable.  He  is  not  acting  as  a  servant,  representative,  agent or delegate. He is an embodiment of the company  or,  one  could  say,  he  hears  and  speaks  through  the  persona of the company, within his appropriate sphere,  and his mind is the mind of the company. If it is guilty  mind then that guilt is the guilt of the company. It must  be a question of law whether, once the facts have been  ascertained, a person in doing particular things is to be  regarded as the company or merely as the company’s  servant  or  agent.  In  that  case  any  liability  of  the  company can only be a statutory or vicarious liability.”

38. From  the  above  it  becomes  evident  that  a  corporation  is  

virtually  in  the  same  position  as  any  individual  and  may  be  

convicted of  common law as well  as statutory offences including  

those requiring mens rea.  The criminal liability of a corporation  

would  arise  when  an  offence  is  committed  in  relation  to  the  

business  of  the  corporation  by  a  person  or  body  of  persons  in  

control of its affairs.  In such circumstances, it would be necessary  

to ascertain that the degree and control of the person or body of  

persons is so intense that a corporation may be said to think and  

act through the person or the body of persons. The position of law  

on this issue in Canada is almost the same.  Mens rea is attributed  

to corporations on the principle of ‘alter ego’ of the company.   

39. So  far  as  India  is  concerned,  the  legal  position  has  been  

clearly stated by the Constitution Bench judgment of this Court in  40

the  case  of  Standard  Chartered  Bank Vs.  Directorate  of  

Enforcement39 On a detailed consideration of  the entire body of  

case laws in this country as well as other jurisdictions, it has been  

observed as follows:

“There  is  no  dispute  that  a  company  is  liable  to  be  prosecuted  and  punished  for  criminal  offences.  Although there are earlier authorities to the effect that  corporations  cannot  commit  a  crime,  the  generally  accepted modern rule is that except for such crimes as  a corporation is held incapable of committing by reason  of the fact that they involve personal malicious intent, a  corporation  may  be  subject  to  indictment  or  other  criminal  process,  although  the  criminal  act  is  committed through its agents.”

This  Court  also  rejected  the  submission  that  a  company  could  

avoid  criminal  prosecution  in  cases  where  custodial  sentence  is  

mandatory.  Upon examination of the entire issue, it is observed as  

follows:-

“27. In  the  case  of  Penal  Code  offences,  for  example  under  Section  420  of  the  Indian  Penal  Code,  for  cheating and dishonestly inducing delivery of property,  the  punishment  prescribed  is  imprisonment  of  either  description for a term which may extend to seven years  and shall also be liable to fine; and for the offence under  Section 417, that is, simple cheating, the punishment  prescribed is  imprisonment  of  either  description for  a  term which may extend to one year or with fine or with  both.  If  the  appellants’  plea  is  accepted  then  for  the  offence under Section 417 IPC, which is an offence of  minor  nature,  a  company  could  be  prosecuted  and  punished  with  fine  whereas  for  the  offence  under  Section 420, which is an aggravated form of cheating by  which  the  victim  is  dishonestly  induced  to  deliver  

39  Supra 41

property, the company cannot be prosecuted as there is  a mandatory sentence of imprisonment.

28. So also there are several other offences in the Indian  Penal  Code which describe  offences  of  serious nature  whereunder a corporate body also may be found guilty,  and the punishment prescribed is mandatory custodial  sentence.  There  are  a  series  of  other  offences  under  various statutes where the accused are also liable to be  punished with custodial sentence and fine.

30. As  the  company  cannot  be  sentenced  to  imprisonment, the court has to resort to punishment of  imposition  of  fine  which  is  also  a  prescribed  punishment. As per the scheme of various enactments  and also  the Indian Penal  Code,  mandatory  custodial  sentence  is  prescribed  for  graver  offences.  If  the  appellants’  plea is accepted, no company or corporate  bodies  could  be  prosecuted  for  the  graver  offences  whereas they could be prosecuted for minor offences as  the sentence prescribed therein is custodial sentence or  fine.  

31. As  the  company  cannot  be  sentenced  to  imprisonment,  the  court  cannot  impose  that  punishment,  but  when  imprisonment  and  fine  is  the  prescribed  punishment  the  court  can  impose  the  punishment of fine which could be enforced against the  company.  Such  a  discretion  is  to  be  read  into  the  section so far  as the juristic  person is  concerned.  Of  course, the court cannot exercise the same discretion as  regards a natural person. Then the court would not be  passing the sentence in accordance with law. As regards  company,  the court  can always impose a sentence  of  fine and the sentence of imprisonment can be ignored  as  it  is  impossible  to  be  carried  out  in  respect  of  a  company.  This  appears  to  be  the  intention  of  the  legislature and we find no difficulty in construing the  statute in such a way. We do not think that there is a  blanket  immunity  for  any  company  from  any  prosecution  for  serious  offences  merely  because  the  prosecution  would  ultimately  entail  a  sentence  of  mandatory  imprisonment.  The  corporate  bodies,  such  as a firm or company undertake a series  of  activities  that affect the life, liberty and property of the citizens.  Large-scale financial irregularities are done by various  corporations. The corporate vehicle now occupies such a  large  portion  of  the  industrial,  commercial  and  sociological sectors that amenability of the corporation  to a criminal law is essential to have a peaceful society  with stable economy.

32. We hold that there is no immunity to the companies  from prosecution merely because the prosecution is in  

42

respect of offences for which the punishment prescribed  is mandatory imprisonment (sic and fine). We overrule  the  views  expressed  by  the  majority  in  Velliappa  Textiles1 on  this  point  and  answer  the  reference  accordingly. Various other contentions have been urged  in all appeals, including this appeal, they be posted for  hearing before an appropriate Bench.”

40. These  observations  leave  no  manner  of  doubt  that  a  

company  /  corporation  cannot  escape  liability  for  a  criminal  

offence,  merely  because  the  punishment  prescribed  is  that  of  

imprisonment and fine. We are of the considered opinion that in  

view  of  the  aforesaid  Judgment  of  this  Court,  the  conclusion  

reached by the High Court that the respondent could not have the  

necessary mens rea is clearly erroneous.  

41. The next important question which needs to be examined is  

as to whether the averments made in the complaint if taken  

on  their  face  value  would  not  prima  facie  disclose  the  

ingredients  for  the  offence  of  cheating  as  defined  under  

Section 415 IPC.  The aforesaid section is as under:-

“Cheating.-  Whoever,  by  deceiving  any  person,  fraudulently  or  dishonestly  induces  the  person  so  deceived  to  deliver  any property  to  any person,  or  to  consent that any person shall  retain any property,  or  intentionally  induces the person so deceived to do or  omit to do anything which he would not do or omit if he  were not so deceive, and which act or omission causes  or is likely to cause damage or harm to that person in  body, mind, reputation or property, is said to “cheat”.  

Explanation-  A  dishonest  concealment  of  facts  is  a  deception within the meaning of the section.”

43

42. A bare perusal of the aforesaid section would show that it can  

be  conveniently  divided into  two parts.   The  first  part  makes it  

necessary that the deception by the accused of the person deceived,  

must be fraudulent or dishonest.  Such deception must induce the  

person deceived to: either (a) deliver property to any person; or (b)  

consent that any person shall retain any property.  The second part  

also  requires  that  the  accused  must  by  deception  intentionally  

induce  the  person deceived  either  to  do or  omit  to  do anything  

which  he  would  not  do  or  omit,  if  he  was  not  so  deceived.  

Furthermore, such act or omission must cause or must be likely to  

cause damage or harm to that person in body, mind, reputation or  

property.   Thus,  it  is  evident  that  deception  is  a  necessary  

ingredient  for  the  offences  of  cheating  under  both  parts  of  this  

section.   The  complainant,  therefore,  necessarily  needs  to  prove  

that the inducement had been caused by the deception exercised  

by  the  accused.   Such  deception  must  necessarily  produce  the  

inducement to part with or deliver property, which the complainant  

would not have parted with or delivered, but for the inducement  

resulting from deception.   The explanation to the section would  

clearly  indicate that there must be no dishonest  concealment of  

facts. In other words, non-disclosure of relevant information would  

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also  be  treated  as  a  mis-representation  of  facts  leading  to  

deception.   

It  was,  therefore,  necessary  for  the  High  Court  to  examine  the  

averments in the complaint in terms of the aforesaid section. The  

High Court upon detailed examination of the 1992 PPM, the Stock  

Purchase Agreements and the 1995 PPM concluded that even if the  

averments made in the complaint are accepted on their face value,  

it would only disclose a civil dispute between the parties.   

43. Surprisingly, the High Court notices the representations that  

were made and contrasted the same with the actual realities and  

yet concluded that the averments made in the complaint even if  

taken at their face value would not lead to the conclusion that the  

respondent has committed the offence of cheating.  In coming to  

the  aforesaid  conclusions,  the  High  Court  has  given  elaborate  

reasons.  The High Court negated the submissions of the appellant  

that  1992 PPM is  in  the nature  of  a  prospectus  or  a  brochure,  

which requires  that  all  technical  information  touching  upon the  

commercial feasibility of the project had to be faithfully and fully  

disclosed.  The submission is rejected with the observation that the  

1992 PPM contained the following caution:-

“An investment in Iridium involves certain risks, many  of which relate to the factors and developments listed  above,  prospective  investors  should  carefully  consider  the  disclosures  set  forth  elsewhere  in  this  

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memorandum, including those under the caption ‘risk  factors’(1992 PPM Pg. 5)”

The High Court also accepted the submissions of the respondent  

that  the  1992  PPM  contained  a  separate  chapter  titled  “Risk  

Factors”.  This portion related to the most important risk factors  

which were as follows:-

“New regulated  Business  Venture.  The  Company  is  a  new business venture of global scope that will require  substantial licensing and authorizations from numerous  sovereign nations before its business can be conducted  in  the  manner  contemplated  by  its  current  business  plan. Therefore in deciding whether to invest in Shares,  prospective investors must evaluate among other things,  the potential  feasibility and future performance of  the  Company based on its business plan without benefit of  any operating history,  and prior  to  application for  an  receipt  of  such  licensing  and  authorizations.  No  assurance  can  be  given  that  any  of  the  necessary  licenses and authorizations will be obtained in a timely  or at all. (1992 PPM Pg. 72)”  

44. According to the High Court,  the respondent no. 1 did not  

keep the investors in dark about the Iridium System and gave them  

all  necessary  information  in  respect  of  various  aspects  of  the  

system.   In  coming  to  the  aforesaid  conclusion,  the High Court  

observed that “a bare perusal of the complaint shows that there is  

no reference to the Stock Purchase Agreements of 1993 and 1994.  

In fact, these two important documents contain acknowledgments  

of the investors about their capability of evaluating the merits and  

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risks of the purchase of the shares and their relying upon their own  

advisors.”  The High Court, therefore, negated the submission that  

there has not been a complete and candid disclosure of the entire  

material which has resulted in the deception / inducement of the  

appellant to make huge investment in the Iridium. This conclusion  

reached by the High Court did not take notice of the explanation to  

Section 415. The aforesaid explanation gives a statutory recognition  

to  the  legal  principles  established  through  various  judicial  

pronouncements  that  misleading  statements  which  withhold  the  

vital facts for intentionally inducing a person to do or to omit to do  

something would amount to deception. Further, in case it is found  

that  misleading statement has wrongfully  caused damage to  the  

person deceived it would amount to cheating.  It would at this stage  

be appropriate  to notice the observations made by the House of  

Lords in  the case  of  The Director  &c.  of  the Central  Railway  

Company of  Venezuela Vs.  Joseph Kisch  40   which would be of  

some relevance to the issue under consideration. In this case, the  

House  of  Lords  examined  the  duty  of  those  who  issued  a  

prospectus inviting investments from the general public and held  

that they were required to make a true and full disclosure of all the  

relevant  facts.   The  House  of  Lords  quoted  with  approval  the  

observations made in the  case of  New Brunswick and Canada  40  supra

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Railway Company Vs. Muggeridge  41    wherein it has been observed  

as follows :-

“………those who issue a prospectus holding out to the  public  the  great  advantages  which  will  accrue  to  persons  who  will  take  shares  in  a  proposed  undertaking,  and inviting them to take shares on the  faith  of  the  representations  therein  contained,  are  bound to  state  everything  with  strict  and scrupulous  accuracy, and not only to abstain from stating as fact  that which is not so, but to omit no one fact within their  knowledge the existence of which might in any degree  affect the nature, or extent, or quality of the privileges  and  advantages  which  the  prospectus  holds  out  as  inducements to take shares.”  

The House of Lords went on to observe that it is no answer to a  

person who has been deceived that he would have known the  

truth by proper inquiry. It would be apposite to reproduce here  

the observations made by the House of Lords on this aspect of  

the matter:

“But it appears to me that when once it is established  that there has been any fraudulent misrepresentation or  willful concealment by which a person has been induced  to enter into a contract, it is no answer to his claim to  be relieved from it to tell him that he might have known  the  truth  by  proper  inquiry.  He has a  right  to  retort  upon his objector, “You, at least, who have stated what  is untrue or have concealed the truth, for the purpose of  drawing me into a contract, cannot accuse me of want  of caution because I relied implicitly upon your fairness  and  honesty”.  I  quite  agree  with  the  opinion  of  Lord  Lyndhurst,  in the case of  Small  Vs.  Attwood (1),  that  “where  representations  are  made  with  respect  to  the  nature and character of property which is to become the  subject of purchase, affecting the value of that property,  and  those  representations  afterwards  turn  out  to  be  

41  Supra 48

incorrect  and  false,  to  the  knowledge  of  the  party  making them, a foundation is laid for maintaining an  action in a Court of common law to recover damages for  the  deceit  so  practiced;  and  in  a  Court  of  equity  a  foundation is laid for setting aside the contract which  was founded upon that basis.” And in the case of Dobell  Vs. Stevens (2),  to which he refers as an authority in  support  of  the  proposition,  which  was  an  action  for  deceit  in  falsely  representing  the  amount  of  the  business  done  in  a  public  house,  the  purchaser  was  held  to  be  entitled  to  recover  damages,  although  the  books were in the house, and he might have had access  to them if he thought proper. Upon the whole case I think the decree of Lords Justices  ought  to  be  affirmed,  and  the  appeal  dismissed  with  costs.”

The  aforesaid  observations  leave  no  manner  of  doubt  that  the  

appellants were entitled to an opportunity to prove the averments  

made in the complaint.  They were entitled to establish that they  

have been deliberately induced into making huge investments on  

the  basis  of  representations  made  by  respondent  no.  1  and  its  

representatives, which representations subsequently turned out to  

be completely false and fraudulent.  The appellants were entitled to  

an  opportunity  to  establish  that  respondent  no.  1  and  its  

representatives were aware of the falsity of the representations at  

the  time  when  they  were  made.   The  appellants  have  given  

elaborate details of the positive assertions made by respondent no.  

1 which were allegedly false to its knowledge.  It is also claimed by  

the appellants that the respondent no. 1 and its representatives  

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willfully  concealed  facts  which were  material  and ought  to  have  

been disclosed, but were intentionally withheld so as to deceive the  

appellant into advancing and expending a sum of Rs.500 Crores.   

As noticed earlier, both the appellants and the respondents have  

much to say in support of their respective view points.  Which of  

the views is ultimately to be accepted, could only be decided when  

the parties have had the opportunities to place the entire materials  

before the Court.   This Court has repeatedly held that power to  

quash  proceedings  at  the  initial  stage  have  to  be  exercised  

sparingly with circumspection and in the rarest of the rare cases.  

The power is to be exercised ex debito justitiae. Such power can be  

exercised where a criminal proceeding is manifestly attended with  

malafide and have been instituted maliciously with ulterior motive.  

This inherent power ought not to be exercised to stifle a legitimate  

prosecution.  In the present case, the parties are yet to place on the  

record the entire material in support of their claims.  The issues  

involved are of considerable importance to the parties in particular,  

and the world of trade and commerce in general.   

45. In such circumstances, in our opinion, the High Court ought  

to  have  refrained  from  indulging  in  detailed  analysis  of  very  

complicated  commercial  documents  and  reaching  any  definite  

conclusions.  In our opinion, the High Court clearly exceeded its  

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jurisdiction  in  quashing  the  criminal  proceeding  in  the  peculiar  

facts and circumstances of this case.  The High Court noticed that  

while  exercising  jurisdiction  under  Section  482  Cr.P.C.  “the  

complaint  in  its  entirety  will  have  to  be  examined  on  the  

basis of the allegations made therein.  But the High Court has  

no authority or jurisdiction to go into the matter or examine  

its correctness.  The allegations in the complaint will have to  

be accepted on the face of it and the truth or falsity cannot  

be entered into by the Court at this stage.”  Having said so, the  

High Court proceeded to do exactly the opposite.   

46. We, therefore, allow the appeal and set aside the impugned  

judgment of the Bombay High Court. There shall be no order as to  

costs.  

      …………………………………….J.                                                [B. Sudershan Reddy]

.…………………………………….J.                                                 [Surinder Singh Nijjar]

New Delhi; October 20, 2010.

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