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SUNDARAM FINANCE SERVICE & LTD. V. GRANDTRUST FINANCE LTD.

Sundaram Finance Service & Ltd. V. Grandtrust Finance Ltd., (2003) 42 SCL 89 (Mad)

ISSUE:

  • Whether private complaint can be quashed at initial stage where evidence has to be recorded, witnesses have to be examined and charges have to be formed?

RULE:

  • In a case of a private complaint there are two stages, one is taking cognizance and the other is framing charges. If there would be a grave suspicion that the accused would have committed an offence, it is enough for the Court to frame charges.

FACTS:

  • The third accused party, M/s. Vishnu Forge Industries, is sponsored by the first accused, i.e., the first petitioner M/s. Sundaram Finance Services Limited. The third accused company needed money to finance the expansion of their business activities, so they approached the respondent and persuaded them to buy shares together with the first accused.
  • As a result, the respondent, assuming their assertion to be accurate, purchased 50000 equity shares at a face value of Rs. 10 each, plus a Rs. 6 premium each share. The cheque was drawn in the favor of the third accused and the first accused received it.
  • The first and the third accused entered into a Sponsorship Agreement and the very first clause in the Sponsorship Agreement provided that the first accused shall be the Sponsor and shall arrange to offer the Equity Shares for sale to the public not later than April 30, 1996, and to get them listed at the Over-the-Counter Exchange of India (OTCEI).
  • The first accused and the third accused as one party and the respondent along with the other Co-investors as another party, entered into a Divestment Agreement. Clause 15 of the Divestment Agreement stated that the Sponsor shall arrange to offer the equity shares for sale to the public not later than 30.04.1996.
  • The respondent only on such representation made by the accused believed the same to be true and had purchased the shares to the tune of Rs.8,00,000/-. Contrary to such representations the first accused failed to arrange to offer the equity shares for sale to the public. Moreover, no efforts had been taken by the accused either to list the shares or anything was done in the direction of going public.
  • Without the knowledge of the investors, including the respondent, the first and third accused had entered into a Supplementary Agreement to Sponsorship Agreement between themselves. Even when stating that the shares will be offered for sale on April 30, 1996, the Sponsor allegedly misled the respondent and made a false promise.

HELD:

  • The High Court of Madras did not discover a justification to dismiss the complaint and, as a result, dismissed the petition. None of the parties specified the Section under which the Magistrate had jurisdiction, and at any rate, the Magistrate may have brought up this issue when he or she was formulating the charges.
  • The court determined that there is adequate justification for the Magistrate to take cognizance of the offence as against the accused based on the facts of the case, which show a series of occurrences occurring between 1995 and 1996.