Pointing out that a shareholder is not short of remedies against fraud, Justice Suraj Govindaraj said that such a shareholder essentially needs to go through the procedure under Section 213 of the Act and approach the tribunal.
“In the event of a report being submitted by the inspector to the tribunal that there is a fraud, either the shareholder or tribunal could refer the report to Serious Fraud Investigation Office (SFIO) which can then follow the procedure provided under Section 212 of the Act and initiate criminal proceedings for an offence under Section 447,” the judge said while pointing out that Section 447 is a cognisable offence.
Cognisable offences are grave offences that provide for arrest without warrant. Section 447 prescribes punishment for fraud in company affairs, ranging from six months up to 10 years, with fine amount ranging from the sum involved in the fraud to three times of that sum. If the fraud involves public interest, term of imprisonment will be three years or more.
The judge quashed the proceedings against M Gopal, a resident of Mulbagal taluk in Kolar district. Gopal is director of a company called MG 6 Wholesale Market (India) Pvt Ltd. He had challenged proceedings initiated against him before the judicial magistrate first class, Mulbagal, by a fellow director, Ganga Reddy, a resident of Bengaluru.
While the petitioner owned 55% shares, complainant Reddy held 45%. Reddy alleged that Gopal had defrauded the company, and the private complaint was lodged in 2015. Gopal argued that no private complaint can be filed by the director or a shareholder and the procedure under Section 212 has not been followed.