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Paul Joseph vs State Of Kerala on 11 December, 2019

IN THE HIGH COURT OF KERALA AT ERNAKULAM

PRESENT

THE HONOURABLE MR. JUSTICE R. NARAYANA PISHARADI

WEDNESDAY, THE 11TH DAY OF DECEMBER 2019 / 20TH AGRAHAYANA,
1941

Crl.MC.No.4325 OF 2016

CC 1612/2015 DATED 22-06-2015 OF ADDITIONAL CHIEF JUDICIAL
MAGISTRATE, ERNAKULAM

PETITIONERS:

1 PAUL JOSEPH
AGED 40 YEARS, S/O. JOSEPH,VALIYAPARAMBIL
HOUSE, N.K.SREEDHARAN ROAD,PACHALAM P.O.,
COCHGIN – 682 012.

2 GREGORY P.J
AGED 52 YEARS, S/O. JOSEPH,PANDIYATHUMPARAMBIL
HOUSE,VADUTHALA P.O., COCHIN – 682 023.

3 P.J.JOSEPH
AGED 52 YEARS, S/O. JOHN, PADINJATTUMURI
HOUSE,VADUTHALA P.O., COCHIN – 682 023.

4 V.J.PETER
AGED 65 YEARS, S/O. JOSEPH,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN – 682 023.

5 GILROY MENDEZ
AGED 40 YEARS, S/O.ANTONY MENDEZ,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN – 682 023.

6 JOHN BOSCO D SILVA
AGED 65 YEARS, S/O. LAWRENCE
D’SILVA,ALINGAPADATH HOUSE, VADUTHALA
P.O.,COCHIN – 682 023, NOW RESIDING AT
C/O.BABURSHAH,PATHALA HOUSE, ALANGAD P.O.,
KOTTAPPURAM – 683 511.

7 PYLEE EUGINE
AGED 49 YEARS, S/O. PYLEE,KUNNATH HOUSE,
VADUTHALA P.O.,COCHIN – 682 023.
Crl.M.C.No.4325/2016
2

8 JEROME EMILIAN MENDEZ
AGED 51 YEARS, S/O. LEONS MENDEZ,VALIYAPARAMBIL
HOUSE, VADUTHALA P.O.,COCHIN – 682 023.

9 GEORGE MARTIN
AGED 51 YEARS, S/O. GEORGE,VALIYAPRAMABIL
HOUSE, PACHALAM P.O.,COCHIN – 682 012.

10 DOMINIC SAVIO
AGED 45 YEARS, S/O. JOSEPH,MANAYIL HOUSE,
VADUTHALA P.O.,COCHIN – 682 023.

11 JOSEPH LANGTON CORREYA
AGED 62 YEARS, S/O. MANUEL CORREYA,AMBAT HOUSE,
S.R.M ROAD,KOCHI – 682 012.

12 JERROME CORREYA
AGED 75 YEARS, S/O. JOHN CORREYA,AMBAT HOUSE,
S.R.M ROAD,KOCHI – 682 012.

13 GASPER CORREYA
AGED 75 YEARS, S/O. FRANCIS CORREYA,AMBAT
HOSUE, S.R.M ROAD, KOCHI – 682 012.

14 EPHREM N.M
AGED 40 YEARS, S/O. N.J.MATHEW,NEDUMPILLY
HOUSE, PACHALAM P.O.,KOCHI – 682 012.

15 PETER LOPEZ
AGED 50 YEARS, THUNDIPARAMBIL HOUSE,VADUTHALA
P.O., KOCHI – 682 023.

BY ADVS.
SRI.N.J.MATHEWS
SRI.MADHU N.NAMBOOTHIRIPAD

RESPONDENTS:

1 STATE OF KERALA
REPRESENTED BY THE PUBLIC PROSECUTOR,HIGH COURT
OF KERALA, KOCHI-682031.
Crl.M.C.No.4325/2016
3

2 JUDE A LUIZ
S/O. LAWRENCE LUIZ,AGED 65 YEARS,CHERUPUNATHIL
HOUSE,PACHALAM P.O.,KOCHI – 682 012.

R2 BY ADV. SRI.AJITH MURALI
R2 BY ADV. SRI.K.V.ANIL KUMAR
R2 BY ADV. SRI.T.A.SHAJI SR.

SRI E C BINEESH-PP

THIS CRIMINAL MISC. CASE HAVING BEEN FINALLY HEARD ON
26.10.2019, THE COURT ON 11.12.2019 PASSED THE FOLLOWING:
Crl.M.C.No.4325/2016
4

R.NARAYANA PISHARADI, J
************************
Crl.M.C.No.4325 of 2016
—————————————————–
Dated this the 11th day of December, 2019

ORDER

The petitioners are the directors of the company by name

‘M/s.Bhagyodayam Company’ (hereinafter referred to as ‘the

company’). It is a public company limited by guarantee.

2. The petitioners are accused 1 to 15 in the case

C.C.No.1612/2015 on the file of the Court of the Additional Chief

Judicial Magistrate, Ernakulam. The offence alleged against the

petitioners is punishable under Section 406 read with 34 and

120B I.P.C.

3. The case against the petitioners is based on

Annexure-VIII complaint filed in the court by the second

respondent (hereinafter referred to as ‘the complainant’).

4. The material averments in Annexure-VIII complaint

can be stated as follows: The complainant is a member of the
Crl.M.C.No.4325/2016
5

company. The first accused is the Managing Director of the

company. Accused 2 to 5 are the trustees and accused 6 to 10

are the directors of the company who were elected in the Annual

General Meeting held on 28.12.2013. Accused 5 and 10 to 15

are the nominated directors of the company. They have no right

to officiate as directors. SectionArticle 40 of the Articles of Association

of the company provides that the profits of the company shall not

be distributed among members. The accused, in furtherance of

their common intention to swindle the funds of the company,

illegally spent an amount of Rs.13,50,000/- and distributed

computers with printers and internet facility to 45 members of

the company. They also spent an amount of Rs.28,600/- for

booking tickets for a pleasure trip to Goa for 28 members of the

company. The funds of the company were entrusted to the

accused as persons responsible for the management of the

company and its affairs. The accused have illegally spent the

money which was entrusted to them as the trustees. The

accused, being the directors of the company, are entrusted with

the funds and the property of the company and they have the
Crl.M.C.No.4325/2016
6

obligation to manage and dispose of the property of the company

only according to the provisions of the Articles of Association of

the company. The accused have dishonestly misappropriated the

property of the company in violation of SectionArticle 40 of the Articles

of Association. They have taken part in the decision making

process of the company which ended in spending the amount, as

stated above. They had conspired together to commit

misappropriation of the funds of the company.

5. This petition is filed under Section 482 Cr.P.C to quash

the proceedings against the petitioners on the ground that the

allegations/averments in Annexure-VIII complaint do not

constitute the ingredients of an offence punishable under Section

406 I.P.C.

6. Heard learned counsel for the petitioners and the

second respondent.

7. Learned counsel for the petitioners contended that the

averments in Annexure-VIII complaint do not make out the

ingredients of the offence of criminal breach of trust which is

defined under Section 405 I.P.C and which is made punishable
Crl.M.C.No.4325/2016
7

under Section 406 I.P.C. Learned counsel for the petitioners

would submit that the amount allegedly spent by the accused

belonged to the company and that the complainant had not

entrusted the amount to the petitioners and therefore, there was

no entrustment of money which is the basic ingredient of an

offence defined under Section 405 I.P.C.

8. It is admitted in the petition that the petitioners are

the directors of the company.

9. The crux of the allegations in Annexure-VIII complaint

is that the petitioners, being the directors and trustees of the

company, spent an amount of Rs.13,50,000/- and distributed

computers with printer and internet facility to 45 members of the

company and that the petitioners also booked tickets for a

pleasure trip to Goa for 26 members of the company by spending

Rs.28,600/- and the aforesaid acts of the petitioners violated

SectionArticle 40 of the Articles of Association of the company.

10. Section 405 of the Indian Penal Code reads as follows:

“Criminal breach of trust. – Whoever, being in
any manner entrusted with property, or with any
Crl.M.C.No.4325/2016
8

dominion over property, dishonestly
misappropriates or converts to his own use that
property, or dishonestly uses or disposes of that
property in violation of any direction of law
prescribing the mode in which such trust is to be
discharged, or of any legal contract, express or
implied, which he has made touching the discharge
of such trust, or wilfully suffers any other person so
to do, commits “criminal breach of trust.”

11. The ingredients of an offence of criminal breach of trust,

as defined under Section 405 I.P.C, are the following: (a) a

person should have been entrusted with property, or entrusted

with dominion over property; (b) that person should dishonestly

misappropriate or convert to his own use that property, or

dishonestly use or dispose of that property or wilfully suffer any

other person to do so; and (c) that such misappropriation,

conversion, use or disposal should be in violation of any direction

of law prescribing the mode in which such trust is to be

discharged, or of any legal contract which the person has made,

touching the discharge of such trust.

12. Learned counsel for the petitioners contended that the
Crl.M.C.No.4325/2016
9

complainant had not entrusted any money with the petitioners

and that the petitioners had not dishonestly used or disposed of

such amount. Learned counsel would contend that the

complainant is only a member or shareholder of the company

and he has no right over the property of the company.

13. Learned counsel for the petitioners referred to the

decision of the Supreme Court in SectionBacha F. Guzdar v.

Commissioner of Income Tax : AIR 1955 SC 74 in support of

his contention that a shareholder has no right over the property

of a company. In this decision, the Apex Court has held that a

shareholder has got no right or interest in the property of the

company and that the company is a juristic person and is distinct

from the shareholders and it is the company which owns the

property and not the shareholders. However, the Apex Court has

further held that the shareholders of the company have the sole

determining voice in administering the affairs of the company

and are entitled, as provided by the Articles of Association, to

declare that dividends should be distributed out of the profits of

the company to the shareholders. In the instant case, no
Crl.M.C.No.4325/2016
10

question of declaration of dividends arises as the company is

limited by guarantee. But, the right to decide how profits shall

be used, otherwise than specifically provided in SectionArticle 40 of the

Articles of Association, vests with the members.

14. In order to attract the offence defined under Section

405 I.P.C, there is no need of entrustment of property or money

to the petitioners by the complainant himself. Entrustment of

property as envisaged in Section 405 I.P.C need not be in any

particular manner. The entrustment may arise in “any manner”

whatsoever.

15. SectionIn Som Nath Puri v. State of Rajasthan : AIR

1972 SC 1490, the Supreme Court has held as follows:

“Section 405 merely provides, whoever being in
any manner entrusted with property or with any
dominion over the property, as the first ingredient
of the criminal breach of trust. The words ‘in any
manner’ in the context are significant. The section
does not provide that the entrustment of the
property should be by someone or the amount
received must be the property of the person on
whose behalf it is received. As long as the accused
Crl.M.C.No.4325/2016
11

is given possession of property for a specific
purpose or to deal with it in a particular manner,
the ownership being in some person other than the
accused, he can be said to be entrusted with that
property to be applied in accordance with the
terms of entrustment and for the benefit of the
owner”.

(emphasis supplied)

16. The expression ‘entrusted with property’ or ‘with any

dominion over property’ has been used in a wide sense in Section

405 I.P.C. The expression ‘entrusted’ appearing in Section 405

I.P.C is not necessarily a term of law. It has wide and different

implications in different contexts. The property in respect of

which criminal breach of trust can be committed must necessarily

be the property of some person other than the accused or the

beneficial interest in or ownership of it must be in other person

and the offender must hold such property in trust for such other

person or for his benefit.

17. The funds or the profits of the company do not belong

to the directors of the company. It is the property of the

company. Therefore, when the directors of a company
Crl.M.C.No.4325/2016
12

dishonestly use the money owned by the company in violation of

any direction or obligation regarding the manner in which it is to

be used, they commit the offence of criminal breach of trust.

18. SectionIn R.K. Dalmia v. Delhi Administration : AIR 1962

SC 1821 it has been categorically held by the Apex Court that

directors are not only agents but trustees of the company’s

money and property and they are no doubt trustees of assets

which have come into their hands, or which are under their

control. In the said decision it was further held that entrustment

of property in the capacity of agent will by itself be sufficient to

make out the offence of criminal breach of trust against the

directors who are the agents of the company.

19. At this juncture, the relevant clauses in the Articles of

Association of the company (Annexure-I) shall be looked into.

SectionArticle 40 reads as follows:

“The profit of the Company cannot be
distributed among the members. The net
profit of the Company to be entrusted with
the Rev.Vicar of this Parish to be utilised for
Crl.M.C.No.4325/2016
13

the general welfare of the Chathiath Roman
Catholic Latin Church, and for the uplift of
Education, Industry etc. of the parish as
resolved in the General Meeting. It shall also
be utilised for any other purposes to anybody
else if so decided by a majority of not less
than 75% of the members present in a
general meeting.”

20. The petitioners have pointed out that, in the year

1985, SectionArticle 40 was amended as per Annexure-XII resolution

passed by the general meeting of the company. As per the

amendment, the provision regarding entrustment of the profits of

the company to the Vicar of the parish has been deleted and a

stipulation has been made that the profits shall be used only for

the purposes of the Roman Catholic Latin Church, Chathiath and

also for the educational development in the parish and for other

charitable purposes, as contemplated under the SectionIncome Tax Act.

21. Even after the amendment, the stipulation in SectionArticle

40 of the Articles of Association of the company that the profits

shall not be divided among the members of the company remains

without any change or alteration. Therefore, as per SectionArticle 40, if
Crl.M.C.No.4325/2016
14

the profits of the company had to be used for any purpose other

than the purposes specifically mentioned therein, it could be

done only by a decision taken in a general meeting of the

members of the company with majority of not less than 75% of

the members present.

22. In the instant case, the petitioners have no case that

the decision to spend money for purchase of computers and for

conducting pleasure trip to Goa was taken by the members in the

general meeting of the company.

23. At this juncture, the other provisions in the Articles of

Association of the company regarding the powers of the directors

and trustees of the company may be noticed. SectionArticle 27 provides

that the directors shall manage the business of the company.

SectionArticle 29 stipulates that the movable and immovable property of

the company shall be in the name of the Managing Director and

trustees and all the transactions relating to moneys and

properties of the company shall be conducted in the name of the

Managing Director and the trustees. SectionArticle 31 provides that the

Managing Director and trustees shall do jointly all the
Crl.M.C.No.4325/2016
15

expenditure of the company. It is further stipulated that

expenditure exceeding Rs.500/- could be made by them only

according to the decision of the general meeting.

24. In the instant case, the petitioners have no case that

the general meeting of the members of the company had

permitted or sanctioned expenditure incurred for purchase of

computers and conducting pleasure trip to Goa for the members

of the company.

25. In the aforesaid circumstances, I am of the view that,

a prima facie case against the petitioners for committing an

offence punishable under Section 406 I.P.C has been made out as

per the averments in Annexure-VIII complaint. Therefore, I find

that the proceedings against the petitioners in the case cannot be

quashed. The petition is liable to be dismissed.

26. The petitioners are at liberty to raise all their

contentions in the court below. This is a warrant case instituted

otherwise than upon a police report. The petitioners would get

opportunity for filing application for discharge under Section 245

Cr.P.C, if they are advised that the evidence adduced by the
Crl.M.C.No.4325/2016
16

complainant under Section 244 Cr.P.C does not make out a prima

facie case against them.

27. Consequently, the petition is dismissed. It is made

clear that nothing stated in this order will preclude the petitioners

from raising their contentions at the stage of the proceedings

before the trial court under Section 245 Cr.P.C.

(sd/-)
R.NARAYANA PISHARADI, JUDGE
jsr
Crl.M.C.No.4325/2016
17

APPENDIX
PETITIONERS’ EXHIBITS:

ANNEXURE-1: TRUE COPY OF THE MEMORANDUM AND ARTICLES OF
ASSOCIATION OF THE BHAGYODAYAM COMPANY.

ANNEXURE-II: TRUE COPY OF THE MINUTES OF THE GENERAL
MEETING HELD ON 17.08.2015.

ANNEXURE-III: TRUE COPY OF MINUTES OF THE EXTRA ORDINARY
GENERAL MEETING HELD ON 4.7.2015.

ANNEXURE-IV: TRUE COPY OF THE ORDER IN I.A.NO.9826/2014
DATED 10.04.2015 OF THE MUNSIFF’S COURT, ERNAKULAM.

ANNEXURE-V: TRUE COPY OF THE ORDER OF THE MUNSIFF’S COURT,
ERNAKULAM DATED 17.8.2015 IN I.A.6071/2015.

ANNEXURE-VI: TRUE COPY OF THE ORDER DATED 19.01.2016 IN
C.M.A.NO.55 OF 2015.

ANNEXURE-VII: TRUE COPY OF THE JUDGMENT OF THIS COURT IN
O.P.(C) 438/2016 DATED 23.2.2016.

ANNEXURE-VIII: TRUE COPY OF THE COMPLAINT FILED BEFORE THE
ADDITIONAL CHIEF JUDICIAL MAGISTRATE, ERNAKULAM.

ANNEXURE-IX: TRUE COPY OF THE BALANCE SHEET OF THE
PETITIONERS COMPANY AS AT 31/03/2016 AND INCOME AND
EXPENDITURE STATEMENT FROM 01/04/2015 TO 31/03/2016.

ANNEXIRE X: TRUE PHOTOCOPY OF COUNTER AFFIDAVIT FILED BY
THE PETITIONERS IN I.A.NO.3928/2015 IN O.S.NO.6/2015 IN THE
MUNSIFF’S COURT, ERNAKULAM.

ANNEXURE XI: TRUE PHOTOCOPY OF THE I.A.6071 OF 2015 IN
O.S.NO.1638/2014 FILED AGAINST THE PETITIONERS’ COMPANY.

ANNEXURE-XII: TRUE COPY OF THE MINUTES OF THE ANNUAL
GENERAL MEETING OF THE COMPANY HELD ON 26.10.1985.
Crl.M.C.No.4325/2016
18

ANNEXURE-XIII: TRUE COPY OF THE MINUTES OF THE 84TH ANNUAL
GENERAL MEETING OF THE COMPANY HELD ON 26.9.2016.

ANNEXURE-XIV: TRUE COPY OF THE COMPANY PETITION NO.29/2017
BEFORE THE NATIONAL COMPANY LAW TRIBUNAL, CHENNAI BENCH.

RESPONDENTS’ EXHIBITS:

ANNEXURE-B(1): A TRUE COPY OF THE JUDGMENT DATED
10.11.1952 IN A.S.NO.47 OF 1125 (ME)OF TRAVANCORE-COCHIN
HIGH COURT WITH TYPED COPY.

ANNEXURE-B(2): A TRUE COPY OF THE ORDER DATED 18.06.2015
IN I.A.NO.3928/2015 IN O.S.6/2015 OF THE ADDL.MUNSIFF AND
RENT CONTROL COURT, ERNAKULAM WITH TYPED COPY.

TRUE COPY

PS TO JUDGE

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