Dr. Anil Khandelwal vs Phoenix India

REPORTABLE IN THE SUPREME COURT OF INDIA CRIMINAL APPELLATE JURISDICTION

CRIMINAL APPEAL NO(S). 1159-1160 OF 2011

ANIL KHANDELWAL ETC. .….APPELLANT(S)

VERSUS

PHOENIX INDIA AND ANR. ….RESPONDENT(S)

WITH

CRIMINAL APPEAL NO(S). 1166 OF 2011

JUDGMENT

MEHTA, J.

CRIMINAL APPEAL NO(S). 1159-1160 OF 2011

1. Heard.

2. The instant appeals are preferred against the

judgment and order dated 3rd December, 2010 Signature Not Verified Digitally signed by RAJNI MUKHI Date: 2025.09.02 19:26:26 IST Reason: 1 passed by the High Court of Judicature at Bombay1

whereby the Criminal Application No. 1258 of 2010

filed by the appellant – Dr. Anil Khandelwal and

Criminal Application No. 1429 of 2010 filed by the

appellants B.M. Sharma and Mukul Ranjan under

Section 482 of Code of Criminal Procedure, 19732

came to be rejected.

3. By way of the said petition, the appellants had

challenged the order dated 29th September, 2008

passed by the Judicial Magistrate First Class3,

Bhiwandi in Complaint No. 6353 of 2007, wherein

the Magistrate had issued process against the

appellants for the offences punishable under Section

500 and 501 of the Indian Penal Code, 18604.

1 Hereinafter being referred to as the “High Court” 2 For short “CrPC” 3 Hereinafter being referred to as the “Magistrate” 4 For short “IPC”

2 Brief Facts: -

4. At the relevant time, the appellant Dr. Anil

Khandelwal was serving as the Chairman and

Managing Director of the Bank of Baroda5, whereas

the appellants B.M. Sharma and Mukul Ranjan held

the positions of Deputy General Manager and Chief

Manager (BCMS) in the Bank, respectively.

5. The respondent No.1-Phoenix India6 had taken

credit facilities from the Bank to the tune of Rs.21.34

crores and had secured the same by mortgage of its

immovable properties.

6. The loan transactions pertain to a period prior

to 2002. Respondent No. 1-firm defaulted in

payment of the instalments of the term loan as well

as the interest due on the outstanding amount from

the quarter ending on 30th June, 2002.

5 Hereinafter being referred to as the “Bank” 6 Hereinafter being referred to as the “firm”

3 Consequently, the Bank classified the loan accounts

of respondent No.1-firm as non-performing assets as

on 31st December, 2002 and notified respondent No.

1-firm to repay the overdue loans along with the

accrued interest. Despite the repeated intimations

and demands, the outstanding amounts were not

cleared whereupon the Bank initiated proceedings

under the provisions of Securitization and

Reconstruction of Financial Assets and Enforcement

of Security Interest Act, 20027. As per the Bank, the

outstanding recoverable dues as on the date of

initiation of proceedings under the SARFAESI Act

were to the tune of Rs.5,09,31,422/- (Rupees Five

Crores Nine Lakhs Thirty-One Thousand Four

Hundred Twenty-Two only) along with interest.

7. Notice dated 25th March, 2007 was issued to

respondent No. 1-firm under Section 13(2) of

7 For short “SARFAESI Act”

4 SARFAESI Act calling upon it to pay the outstanding

dues in full and discharge the liabilities towards the

Bank within 60 days from the date of issuance of the

said notice. Respondent No. 1-firm, in response to

said notice addressed various correspondences to the

Bank, claiming that the demand raised in the notice

was exorbitant and incorrect and also offered variable

solutions for settlement of outstanding dues and

offered to give symbolic possession of the assets to

the Bank. However, despite such assurances,

respondent No. 1-firm failed to clear the outstanding

dues, whereupon the Bank, on 13th June, 2007,

issued a possession notice under Section 13(4) of the

SARFAESI Act read with Rule 8 of the Security

Interest (Enforcement) Rules, 2002, for taking

symbolic possession of the immovable properties

mortgaged by respondent No. 1-firm to secure the

credit facilities.

5

8. It appears that, inadvertently, the outstanding

amount quoted in the possession notice came to be

mentioned as Rs.56,15,9,294/- (Rupees Fifty-Six

Crore Fifteen Lakh Nine Thousand Two Hundred

Ninety-Four only) instead of Rs.5,61,59,294/-

(Rupees Five Crore Sixty-One Lakh Fifty-Nine

Thousand Two Hundred Ninety-Four only). The Bank

claims that the said discrepancy arose solely on

account of a clerical error. Without seeking any

clarification from the Bank in regard to this

discrepancy, respondent No. 1-firm issued a legal

notice dated 23rd July, 2007 to the appellants herein,

namely the Chairman and Managing Director, the

Deputy General Manager, and the Chief Manager of

the Bank, alleging defamation on the ground that the

Bank had maliciously issued the possession notices

reflecting an unrealistic and false outstanding

amount of more than Rs. 50 crores.

6

9. The Bank, in response, promptly issued a

clarificatory letter dated 7th August, 2007 expressing

regret for the clerical error that occurred in

mentioning the amount in the possession notice

pasted on the premises of respondent No. 1-firm.

10. Respondent No. 1-firm, however, was not

satisfied by the clarification letter and filed a criminal

Complaint No. 6353 of 2007 before the Magistrate,

Bhiwandi for the offences under Sections 499, 500

and 501 of the IPC alleging inter-alia that, by raising

the aforesaid exaggerated demand and pasting the

possession notice on the premises of respondent No.

1-firm with fictitious outstanding amount, the Bank

and its officials had defamed respondent No. 1-firm

(complainant) thereby harming its reputation and

future business prospects.

11. The Magistrate proceeded on the complaint and

issued process against the appellants vide order

7 dated 29th September, 2008 after adverting to the

procedure provided under Sections 200 and 202

CrPC.

12. Being aggrieved by the order issuing process

dated 29th September, 2008, the appellants herein

filed two separate applications bearing Nos. 1258 of

2010 and 1429 of 2010 before the High Court seeking

quashing of Complaint No. 6353 of 2007 filed by

respondent No. 1-firm. The order dated 29th

September, 2008 passed by the Magistrate, issuing

process in Complaint No. 6353 of 2007 was

impugned in the aforesaid petitions. The High Court,

however, proceeded to dismiss the quashing petition

observing that the averments in the complaint

disclosed the necessary ingredients of the offences

alleged against the appellants and that the appellants

herein were in-charge of and looking after the day-to-

day affairs of the Bank and thus, were prima facie

8 responsible for issuance of the defamatory

possession notice. With these conclusions, the

quashing petitions came to be rejected. The aforesaid

order of the High Court is subject to challenge in

these appeals by special leave.

13. No one has entered appearance to represent

respondent No. 1-firm (complainant) despite service

of notice.

Findings and Conclusion: -

14. We have heard learned counsel for the

appellants and with their assistance, perused the

material available on record.

15. We are of the firm opinion that the proceedings

of the complaint lodged by respondent No. 1-firm

(complainant) and the order issuing process against

the appellants tantamount to gross abuse of process

of law.

9

16. The Bank is a body Corporate. The appellants

herein, being the Chairman and Managing Director

as well as other Officers of the Bank, were arraigned

as accused on the principle of vicarious liability being

the persons responsible for the day-to-day affairs of

the Bank. However, the Bank itself, on whose behalf

the alleged defamatory notice had been issued, was

not arraigned as an accused in the complaint. It is a

settled position of law that without impleading the

company itself, the prosecution against directors or

officers alone is impermissible.

17. In this regard, we are benefitted of the judgment

of this Court in the case of Aneeta Hada v.

Godfather Travels and Tours (P) Ltd.8 wherein it

was held that prosecution of the directors or officers

of a company can be maintained only when the

company itself is arraigned as an accused and

8 (2012) 5 SCC 661

10 additionally, the directors or officers must have acted

in a manner that directly connects his/her conduct

to the company’s liability. In the absence of the

company being impleaded as an accused, its

directors or officers cannot be fastened with vicarious

liability for offences attributable to the company.

18. Thus, the prosecution of the appellants, without

impleading the Bank as an accused in the

proceedings, is ex-facie impermissible and cannot be

sustained.

19. We may further observe that the learned

Magistrate as well as the High Court have assumed

that the appellants herein were responsible for the

day-to-day affairs of the Bank and thereby the

process of issuance of the so-called defamatory notice

can be attributed to the appellants.

20. Suffice it to say that the appellants have been

summoned in capacity of the officers of the Bank for

11 the offences punishable under the IPC. However,

there is no concept of vicarious liability of the officers

or directors for the offences under the IPC as is

provided under special Penal Statutes such as The

Negotiable Instruments Act, 1881, The Food Safety

and Standards Act, 2006, The Drugs and Cosmetics

Act, 1940, etc. which specifically creates such

liability.

21. In Maksud Saiyed v. State of Gujarat9 similar

situation arose where, due to an inadvertent error by

the bank, allegations of defamation were made, and

the Managing Director of the bank was arraigned as

an accused, wherein this court observed the

following:

“13. Where a jurisdiction is exercised on a complaint petition filed in terms of Section 156(3) or Section 200 of the Code of Criminal Procedure, the Magistrate is required to apply his mind. The Penal Code does not contain any provision for attaching vicarious liability on the part of the

9 (2008) 5 SCC 668

12 Managing Director or the Directors of the Company when the accused is the Company.

The learned Magistrate failed to pose unto himself the correct question viz. as to whether the complaint petition, even if given face value and taken to be correct in its entirety, would lead to the conclusion that the respondents herein were personally liable for any offence. The Bank is a body corporate. Vicarious liability of the Managing Director and Director would arise provided any provision exists in that behalf in the statute. Statutes indisputably must contain provision fixing such vicarious liabilities. Even for the said purpose, it is obligatory on the part of the complainant to make requisite allegations which would attract the provisions constituting vicarious liability.”

(Emphasis Supplied)

22. Accordingly, before any officer of a Bank or a

body corporate can be prosecuted for an offence

under the IPC on the allegation of having acted on

behalf of the institution, it is incumbent upon the

complainant to produce unimpeachable material

indicating the precise role of the officer in the

commission of the alleged offence. Mere bald

assertions of vicarious liability, without foundational

13 facts to show active participation, authorization, or

deliberate omission on the part of the officer, are

insufficient to justify issuance of process in such a

situation. The law does not permit automatic

prosecution of directors or officers merely because of

their designation or official status.

23. In this regard, we may refer to the following

observations made by this Court in Punjab National

Bank v. Surendra Prasad Sinha10 :-

“6. It is also salutary to note that judicial process should not be an instrument of oppression or needless harassment. The complaint was laid impleading the Chairman, the Managing Director of the Bank by name and a host of officers. There lies responsibility and duty on the Magistracy to find whether the concerned accused should be legally responsible for the offence charged for. Only on satisfying that the law casts liability or creates offence against the juristic person or the persons impleaded then only process would be issued. At that stage the court would be circumspect and judicious in exercising discretion and should take all the relevant facts and circumstances into consideration before issuing process lest it

10 1993 Supp (1) SCC 499

14 would be an instrument in the hands of the private complaint as vendetta to harass the persons needlessly. Vindication of majesty of justice and maintenance of law and order in the society are the prime objects of criminal justice but it would not be the means to wreak personal vengeance. Considered from any angle we find that the respondent had abused the process and laid complaint against all the appellants without any prima facie case to harass them for vendetta.”

(Emphasis Supplied)

24. Hence, in the absence of any specific statutory

provision under the IPC creating vicarious liability,

coupled with the lack of concrete allegations or

material demonstrating the individual role or

culpability of the appellants for the alleged

defamatory notice, their prosecution cannot be

sustained. To permit continuation of criminal

proceedings merely on the basis of their official

designation in the Bank would amount to a misuse

of judicial process, contrary to the settled principles

laid down by this Court. Accordingly, the appellants

15 have been wrongly impleaded, and the proceedings

against them are liable to be quashed.

25. Furthermore, the appellants are entitled to the

statutory protection provided under Section 32 of the

SARFAESI Act, which expressly prohibits any suit,

prosecution, or other legal proceedings against the

Reserve Bank, the Central Registry, any secured

creditor, or their officers for anything done in good

faith pursuant to the provisions of the Act.

26. Manifestly, the possession notice dated 13th

June, 2007 was bona fide issued under Section 13(4)

of the SARFAESI Act for taking symbolic possession

of the mortgaged property on account of default in

repayment of outstanding dues. Owing to a clerical

error in the drafting of the notice, instead of reflecting

the true outstanding amount as Rs.5,61,59,294/-

(Rupees Five Crore Sixty One lakh Fifty Nine

Thousand Two Hundred Ninety Four only), the

16 recovery notice portrayed the amount as

Rs.56,15,9,294/- (Rupees Fifty Six Crore Fifteen

Lakh Nine Thousand Two Hundred Ninety Four only).

Upon realizing this inadvertent mistake, the Bank

promptly issued a clarificatory letter on 7th August,

2007, expressing regret and rectifying the figure. This

sequence of events clearly establishes that the

acts/omissions of the Bank and its officials were

bona fide, in due discharge of statutory duties under

the SARFAESI Act, without any mala fide intention to

defame respondent No.1- firm.

27. In such circumstances, the prosecution

initiated against the officers of the Bank (appellants

herein) on the foundation of said clerical error is

untenable both in facts as well as in law.

28. As a result, the impugned order dated 3rd

December, 2010 passed by the High Court and

consequently, the order issuing process dated 29th

17 September, 2008 passed by the Magistrate do not

stand to scrutiny and are hereby quashed and set

aside. Proceedings of the Complaint No. 6353 of

2007 are quashed in entirety.

29. The appeals are allowed in these terms.

30. Pending application(s), if any, shall stand

disposed of.

CRIMINAL APPEAL NO. 1166 OF 2011

31. In the identical facts in Criminal Appeal Nos.

1159-1160 of 2011, we have quashed the

proceedings of Complaint No. 6353 of 2007 filed by

respondent No. 2-firm (complainant). Thus, the order

issuing process dated 20th December, 2007 passed by

the Additional Chief Metropolitan Magistrate, 8th

Court, Esplanade, Mumbai in Criminal Complaint

No. 804530/SS/2007 and all proceedings sought to

be taken therein against the appellant, namely,

18 Mukul Ranjan, also deserve to be and are hereby

quashed.

32. This appeal is allowed accordingly.

33. Pending application(s), if any, shall stand

disposed of.

….……………………J. (SANJAY KAROL)

...…………………….J. (SANDEEP MEHTA) NEW DELHI;

AUGUST 28, 2025.

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