Shareholders cannot complain against their own company: HC

NT Correspondent

Bengaluru: Quashing a criminal case against one of the two shareholders of a company, the High Court has said that the other shareholder could not have filed such a complaint in the first place. M Gopal, approached the High Court with a criminal petition challenging the case pending against him in a court in Mulabagal.

The case was initiated on a complaint filed by one Ganga Reddy. Both Gopal and Reddy are shareholders of the company called ‘MG6 Wholesale Market (India) Pvt Ltd.’ While Gopal owns 55 per cent of the shares, Reddy owns the remaining 45 per cent of the shares in the said company as the minority shareholder.

Gopal is the Director of the company. Reddy filed the complaint against the company under Section 447 of the Companies Act. This section deals with fraud. The allegation was that Gopal had committed fraud to the extent of Rs.1,42,84,389.

Justice Suraj Govindaraj in his judgement in the petition noted that Section 447 provides for “punishment on account of fraud involving an amount of at least ten lakh rupees or one percent of the turnover of the Company, whichever is lower. Furthermore, it provides that the fraud in question, if involves public interest, the same would result in higher imprisonment.”

The HC then pointed to Section 439 of the Companies Act. As per this Section “a complaint could be filed by the Registrar or a Shareholder of the Company or a person authorized by the Central Government on that behalf.

Thus, any offence being noncognizable, a complaint could be filed by the Registrar, Shareholder of the Company or a person authorized by the Central Government.” But this Section did not come to the aid of Reddy.As the court further pointed out, Sub-section 6 of Section 212 of the Companies Act specifically deals with the offence covered under Section 447 of the Act under which Reddy had filed the complaint.

This section “makes it clear that no Court shall take cognizance unless a complaint is made by the Director, Serious Fraud Investigation Office (SFIO) or the officer of the Central Government authorized by a general or special order in writing in this behalf by the Government.”

Quashing the complaint, the HC said that “a shareholder, minority, or otherwise cannot initiate proceedings before the Magistrate by himself or herself for an alleged offence under Section 447 of the Act.”

The HC however, said that minority shareholders have the option of initiating proceedings under Section 213 of the Companies Act. A complaint can be given to the Serious Fraud Investigation Office (SFIO) and then the SFIO can follow it up to initiate criminal proceedings for fraud.