Published on: December 07, 2023 at 11:12 IST
The Karnataka High Court declared that an investor in a company cannot file cheating charges against another investor solely because the business incurs losses.
Justice M Nagaprasanna, presiding over a Single Judge Bench, made this observation while addressing a petition where the petitioners were accused under Sections 420, 468, 406, 403, 418, read with Section 34 of the Indian Penal Code (IPC).
The complainant alleged that he paid Rs. 1.29 crores to petitioner Thomas Sebastian to initiate a company, but the venture never took off.
The police filed a ‘B’ report favoring the petitioners after an investigation. However, the complainant filed a protest memo, leading the Magistrate to reject the ‘B’ report and acknowledge the offenses.
The petitioners argued that the complainant invested in the company, which, unfortunately, suffered losses in the regular course of business. They contended that invoking criminal law for forgery or cheating under such circumstances was unwarranted.
The court noted that both petitioner Thomas Sebastian and the complainant had decided to establish a joint venture company, with both making respective investments. However, the company incurred losses, and the complainant couldn’t recover the invested amount.
Highlighting the contractual nature of the dispute, the court emphasized that initiating criminal proceedings for cheating over business losses was inappropriate.
The judgment stated, “If the business has run into losses, where the investment of both the accused and the complainant was made, it cannot be said that the offense of cheating would ensue against the petitioners, who bona fide invest in the company and due to business losses, the company comes down.”
The court also scrutinized the protest memo filed in response to the police’s ‘B’ report, pointing out procedural irregularities in rejecting the report and taking cognizance of the offenses.
Citing precedent, the court emphasized that continuing the proceedings would amount to an abuse of the legal process and result in a miscarriage of justice.
Case Title: Ann Nimmi Sebastian v. State of Karnataka and Anr.