IRIDIUM INDIA TELECOM LTD. v. MOTOROLA INCORPORATED & ORS

Citation: [2010] 14 S.C.R. 591

Court: Supreme Court of India

Bench: B. SUDERSHAN REDDY, S.S. NIJJAR

Case summary

IRIDIUM INDIA TELECOM LTD. v. MOTOROLA INCORPORATED & ORS.pdf

Judgment text

[201 0) 14 (ADDL. ) S. C. R. 591. IRIDIUM INDIA TE~ECOM LTD. A v. . . MOTOROLA INCORPORATED ~ . ORS. (Criminal Appeal No. 688 of 2005) . OCTOBER 20, 2010 8 [B. SUDERSHAN REDDY AND SURIND. ER SINGH NIJJAR, JJ. ] Code of Criminal Procedure, 1973 - s. 482 :- Corporate . liability for criminal offences - Criminal complaint against C company alleging offence of cheating - Magistrate issued process - Petition under s. 482 CrPC rlw Article 227 of the Constitution allowed by High Court - Justification of - Held: Not justified - A company/corporation cannot escape liability for a criminal offence, merely because the punishment D prescribed is that of imprisonmen_t and fine . - The conclusion reached by the High Court that respondent no)-company could not have the necessary mens rea is cleariy erroneous - The complainants were entitled to an dpportunity to prove the averments made in the complaint - It was not appropriate E for the High Court to exercise its jurisdiction under s.

482 CrPC to quash the proceedings at the stage when the Magistrate had merely issued process against the respondents - The High Courl ought to have refrained from indulging in detailed analysis of very complicated commercial documents and F reaching any definite conclusions - The High Court clearly exceeded its jurisdiction in quashing the criminal proceedings in the peculiar facts and circumstances of the case - Penal Code, 1860- ss. 415, 420 r/w 1208 - Constitution of India, 1950 - Arlicle 227. G Criminal Law - Mens rea - Prosecution of corporations - Held: A corporation will be liable for crimes of intent. Penal Code, 1860 - s. 415, Explanation - Ingredients of 591 H 592 SUPREME COURT REPORTS [2010) 14 (ADDL. ) S. C. R.

A cheating - Held: Misleading statements which withhold vital facts for intentionally inducing a person to do or to omit to do something would amount to deception - In case, such a misleading statement wrongfully causes damage to the person deceived, it would amount to cheating. B Respondent no. 1 conceived a wireless communication system through a constellation of satellites in low orbit to provide digital service to mobile . phones and other subscriber equipment globally. In 1992 · a private placement memorandum (PPM) was floated to C obtain funds/investment to finance the Project. Relying on the representations of respondent no. 1. , the appellant as well as banks and institutions collectively invested huge sums of money to purchase equity shares 0 in the said project and in setting up a gateway. The project turned out to be commercially unviable, resulting in significant loss to the investors. Aggrieved, the appellant filed complaint against E respondent no.

1 before the Judicial Magistrate, First Class inter alia on the allegations of cheating. The Magistrate issued process against respondent no. 1 under Section 420 read with Section 1208 IPC. Respondent no. 1 challenged the same before the High Court by way of a petition under Article 227 of the Constitution and under F Section 482 of CrPC. The High Court allowed the petition and quashed the order issuing process passed by the Judicial Magistrate on the ground that a company or corporation does not have the mens rea tor committing an offence of cheating under Section 415 of IPC. G Allowing the appeal, the Court HELD:1. 1. There is much substance in the submission that virtually in all jurisdictions across the H IRIDIUM INDIA TELECOM LTD. v.

MOTOROLA 593 INCORPORATED world governed by the rule of law, the companies and A 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 leyal position in England and the United St. ates has now crystallized to B leave no manner of doubt that a corporation would be liable for crimes of intent. [Para 35] [628-C-0] 1. 2. 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 C mens rea. The criminal liability of a corporatio! l 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 D 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' E of the company. [Para 38] [633-A-C] 1. 3. A company I corporation cannot escape liability for a criminal offence, merely because the punishment prescribed is that of imprisonment and fine. The F conclusion reached by the High Court that the respondent could not have the necessary mens rea is clearly erroneous. (Para 40] [635-H; 636-A] 1. 4. A bare perusal of section 415 IPC would show that it can be conveniently divided into two parts. The G 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 H 594 SUPREME COURT REPORTS [201 OJ 14 (ADDL. ) S. C. R. A (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 B 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, C 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 0 the section would clearly indicate that there must be no dishonest concealment of facts. In other words, nondisclosure of relevant information would also be treated as a mis-representation of facts leading to deception. [Para 42] [636-F-H; 637-A-B] E 1. 5. It was necessary for the High Court to examine the averments in the complaint in terms of s. 41~ IPC. The High Court upon detailed examination of the 1992 PPM, the Stock Purchase Agreements and the 1995 PPM F 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. According to the High Court, respondent no.

1 did not keep the investors in dark about the Iridium System and gave G 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, H these two important documents contain IRIDIUM ·fNDIA TELECOM LTD. v. MOTOROLA 595 INCORPORATED acknowledgments of the investors about their capability A of evaluating the merits and 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 ~esulted in the deception I B 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, which gives a statutory recognition to the legal principles established through various judicial pronouncements c 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. [Paras 42, 44] [637-C-0; 638-E-H; 639-A-B] D 1. 6. 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 E 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 F 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 respondent no. 1 and its G representatives 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. Both the appellants and the respondents have much to say in · H \ 596 SUPREME COURT REPORTS [2010] 14 (ADDL. ) S. C. R. A support of their respective view points. Which of the views is ultimately to be accepted, could only be ~ecided when the parties have had the opportunities to place the entire materials before the Court.

The power to quash the proceedings at the initial stage have to be exercised s 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 c inherent power ought not to be exercised to stifle a legitimate prosecution. [Para 44] [640-H; 641-A-E] 1. 7. In the circumstances of the instant case, the High Court ought to have refrained from indulging in detailed analysis of very complicated commercial documents and D reaching any definite conclusions. The High Court clearly exceeded its jurisdiction in quashing the criminal proceeding in the peculiar facts and circumstances of the case. The High Court noticed that while exercising 11 jurisdiction under Section 482 CrPC the complaint in its E 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 F cannot be entered into by the Court at this stage. " Having said so, the High Court proceeded to do exactly the opposite. The judgment of the High Court is set aside. [Para 45 and 46] [641-G-H; 642-A-C] . Smt. Nagawwa v. Veeranna (1976) 3 SCC 736; G Municipal Corporation of Delhi v: Ram Kishan Rohtagi (1983) 1 SCC 1; Dhanalakshmi v. R. Prasanna Kumar 1990 (Supp) SCC 686; State of Haryana v.. Bhajan La/ (1992) Supp. (1) SCC 335; Kalpnath Rai v. State (1997) 8 SCC 732; Asstt. Commr. v. Velliappa Textiles Ltd. (2003) 11 SCC 405; H IRIDIUM INDIA TELECOM LTD. v. MOTOROLA 597 INCORPORATED Standard Chartered Bank v. Directorate of Enforcement (2005) A 4 SCC 405; Trisuns Chemical Industry v. Rajesh_Agarwal (1999) 8 SCC 686; Madhavrao Jiwajirao Scindia and Others v.

Sambhajirao Chandrojirao Angre and Others (1988) 1 SCC 692; State of Orissa v. Debendra Nath Padhi (2005) 1 SCC 568; M. N. Ojha and Others v. Alok Kumar Srivastav and 8 Another (2009) 9 SCC 682; Kurukshetra University v. State of Haryana (1977) 4 SCC 451 ; Raj Kapoor and Others v. State (1980) 1 SCC 43; Janata Oaf v. H. S. Chowdhary (1992) 4 SCC 305; State of Orissa v. Debendra Nath Padhi (2005) 1 sec S68; lnder Mohan Goswami and Anr. v. State of c Uttarancha/ and Ors. (2007) 12 SCC 1; Indian Oil Corporation v. NEPC India Ltd. and Ors. (2006) 6 SCC 736; Divine Retreat Centre v. State of Kerala (2008) 3 SCC 542; Kalpanath Rai v. State (1997) 8 SCC 732; M. V. Javali v. Mahajan Borewe/1 & Co. (1997) 8 SCC 72 and A. K. ~Khosla D v. T. S. Venkatesan 1992 Crl. L. J. 1448 -referred to. The Directors & C. , of the Central Railway Company of Venezuela v. Joseph Kisch 1867 English and Irish Appeals (Vol. II), 99; New Brunswick and Canada Railway Company v. Muggeridge (1860)1 Dr. & Sm.

381 ; Redgrave v. Hurd E (1881) 20 Ch. D at p. 13; Aarons Reefs Limited v. Twiss 1896 Appeal Cases 273; (House of Lords); New York Central & Hudson River Railroad Co. Vs. United States 53 L Ed 613; Director of Public Prosecutions v. Kent and Sussex Contractors Ltd. 1944 1 All ER 119; H. L. Bolton (Engg. ) Co. F Ltd. v. T. J. Graham & Sons 1956 3 All ER 6·24 and Tesco Supermarkets Ltd. v. Nattrass 1971 All ER. 127 - referred to. Case Law Reference: (1976) 3 sec 736 referred to Para 23 G (1983) 1 sec 1 referred to Para 23 1990 (Supp) sec 686 referred to Para 23 (1992) Supp. (1) sec 335 referred to Para 23 H 598 SUPREME COURT REPORTS {2010] 14 (ADDL. ) S. C. R. A 1867 English and Irish referred to Para 24 Appeals (Vol. II), 99 (1860)1 Dr. & Sm. 381 referred to Para 24 (1881) 20 Ch. D at p.

13 referred to Para 24 8 1896 Appeal Cases 273 referred to Para 24 (1997) 8 sec 732 referred to Para 26 (2003) 11 sec 405 referred to Para 26 c (2005) 4 sec 405 referred to Para 26 (1999) 8 sec 686 referred to Para 27 (1988) 1 sec 692 referred to Para 29 D (2005) 1 sec 568 referred to Para 29 (2009) 9 sec 682 referred to Para 29 (1977) 4 sec 451 referred to Para 32 (1980) 1 sec 43 referred to Para 32 E (1992) 4 sec 305 referred to Para 32 (2005) 1 sec 568 referred to Para 32 I (2007) 12 sec 1 referred to Para 32 F (2006) 6 sec 736 referred to Para 32 2008) a sec 542 referred to Para 32 (1997) 8 sec 732 referred to Para 33 G (1997) 8 sec 12 referred to Para 33 1992 Crl. L. J. 1448 referred to Para 34 53 LEd 613 referred to Para 35 H IRIDIUM INDIA TELECOM LTD. v. MOTOROLA 599 INCORPORATED 1944 1 All ER 119 referred to Para 36 A 1956 3 All ER 624 referred to Para 36 1971 All ER 127 referred to Para 37 CRIMINAL AP. PELLATE JURISDICTION : Criminal Appeal B No. 688 of 2005.

From the Judgment & Order dated 08 . 08. 20Q3 of the High Court of Bombay in Writ Petition No. 465 of 2002. Ram Jethmalani, Mahesh Jethmalani, Gaurav Shah, c Venkatesh Dhoud, Pranav Badheka, Mahesh Agarwal , Radhika Gautam (for E. C. Agrawala) for the Appellant. Parag Tripathi, ASG, Ashok H. Desai, Amit Desai, Jai Munim, Banoo J. Kapadia , Mohit D. Ram . Poli Katarki , Meenaksi Arora , Kunal Bahri, Sadhana Sandhu, S. N. Terdal, D Subhash Kaushik, Sushma Suri, Shankar Chillarge, Chinmoy A . Khaladkar, Sanjay Kharde, Asha Gopalan Nair for the Respondents. The Judgment of the Court was delivered by E 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 F 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 1208 of the Indian Penal Code. G 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 H 600 SUPREME COURT REPORTS [2010] 14 (ADDL. ) S. C. R. A Inc. are a part of one group of corporations created through mergers and takeovers. Respondent no. 1 was the founder promoter of a 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 B 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 C 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 D 1987 and ft 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 eql;lipment globally. E 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, F financier, controller of its board, as well as the developer of Iridium's business model and the creator 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 G 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 H \- \ l / /· ' . r··, · IRIDIUM INDIA TELECOM LTD~ v.. MOTOROLA>. 'i;. 601:- INCORPORATED [SURINDER SINGH NIJJAR, J. ] . ,. . _/ . ': . . part . (about19. 6%) of the_e. quity of Iridium.

From the inception A . respondent no. 1 exercised effective control over the Board of Directors of.! 'ridium; It was further alleged that most of the pers-ons on the board of Iridium were either former em1ployees or current employees of respondent no. 1 who . were deputed or seco. nded to Iridium. J ,_ · • ' '. _, · . ' ·• ' '1: ·;_' ~~ ··. , ··.. ~·; . · ~ i B · ! ' • '· '•- ,__~'. · .. I ~ ~~ ;•I. ·. I • ; :.. - • '" . - ' -~ . -. , 6. It was further alleged that respondent no. 1 was the primary·contractor for Iridiumsystem/project. \ As a(ready stated above, this. com. prised of fiv~ segm·e! lts. Th. ~s~ fiva_segments were . supplied, sold;. maintained and operated by three contracts viz~. (i) the space system contraCt; (ii) the operation . c ' and maintena! 1ce contract and (iii) the terrestrial Network Development Contract. Each of these contraCts was awarded _by Iridium. , ! ~c? ':tespon~e_n! ·~o. 1. lh. e . ~a. idcontrast~.

~ere intentionally structured to ensure that although Iridium paid all the development costs, res'pondent'no. fwciuld still awn' the most D; vah. iable assets ofthe' Iridium system: It wa's. also 'alle'ged:that . . re-spondent ho. 1 providecf itself~. vitt1 'excess'ive•'profits\vhile'. saddling lridil. lm.. With exorbitant costs: Substantially, ·all the initial -~ capital. raised by. Iridium (form-. persons·which inCluded Iridium·... ; India ~elecom ltd)was'used to make payme'nts to respondent~ E ·· ·-no. 1~·Jr1 al(a. sum. of Rs:,-_19500 crores (6:5 billion u:s sft1as':. been 'paid tili'date by Jii'dium'to respondent no. 1 for' the li"idiu'm, . system:·~---_ 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 b~ relieved 8 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 statep 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 c relied. implicitly upon your fairness and honesty". I quite :~gree 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 D value of that property, and those representations afterwards turn out to be incorrect and false, to the knowledge of the party making them, a foundation is laid for maintaining an action in a Court of common Jaw to recover damages for the deceit so practiced; and in a Court of equity a E foundation is laid for setting aside the contract which was founded upon that basis. " And in the case of Dobell Vs.

Stevens (2), tq 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 F 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. " G 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 H huge investments on the basis of representations made by IRIDIUM INDIA TELECOM LTD. v. MOTOROLA 641 INCORPORATED [SURINDER SINGH NIJJAR, J. ] respondent no. 1 and its representatives, which representations A 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 B assertions made by respondent no. 1 which were allegedly false to its knowledge. It is al$o claimed by the appellants that the respondent no. f and its r~presentatives willfully concealed facts which were material and ought to have been disclosed, but were intentionally withheld so as to deceive the appellant into c 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 0 decided when the parties have had the oppoijunities to place the entire materials before the Court.

This Couft has repeatedly held that power to quash proceedings at the)mtial 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 E 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 F 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 G very complicated commercial documents and reaching any definite conclusions.

In our opinion, the High Court clearly exceeded its 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 H 642 SUPREME COURT REPORTS [2010] 14 (ADDL. ) S. C. R. A 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 B truth or falsify 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 ttie C impugned judgment of the Bombay High Court. There shall be no order as to costs. B. B. B. Appeal allowed.