MR MADHUKAR vs THE REGISTRAR OF COMPANIES

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CRL.P No. 1287 of 2020


IN THE HIGH COURT OF KARNATAKA AT BENGALURU

TH
DATED THIS THE 17 DAY OF OCTOBER, 2026


BEFORE

THE HON'BLE MR. JUSTICE H.P.SANDESH

CRIMINAL PETITION NO.1287 OF 2020


BETWEEN:

1. MR. MADHUKAR,
S/O. K. NAGARAJ,
AGED ABOUT 39 YEARS,
DIRECTOR,
M/S. SUPER ROYAL HOLIDAY INDIA PVT. LTD.,
ST ND
NO.39/1, 1 FLOOR, 2 PHASE
RD
3 CROSS, CHANDRA LAYOUT
BENGALURU-560072.

2. MR. PRASHANTH BHADRAPPAN,
S/O BHADRAPPAN,
AGED ABOUT 39 YEARS,
R/AT NO.68, ‘SAMRUDHI’
RD
3 CROSS, VINAYAKA LAYOUT,
NAGARABHAVI,
BENGALURU-560072.
[FORMER DIRECTOR].
…PETITIONERS

(BY SRI. VIJAY BHONSLE, ADVOCATE)

AND:

1. THE REGISTRAR OF COMPANIES,
II FLOOR, ‘E’ WING,
KENDRIYA SADAN,
KORAMANAGALA,
BENGALURU-560034.
…RESPONDENT

(BY SMT. ANUPAMA HEGDE, ADVOCATE)












Digitally signed
by DEVIKA M
Location: HIGH
COURT OF
KARNATAKA

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CRL.P No. 1287 of 2020


THIS CRIMINAL PETITION IS FILED UNDER SECTION 482
OF CR.P.C PRAYING TO QUASH OR SET ASIDE THE ORDER
DATED 15.03.2019 PASSED BY THE HON’BLE COURT OF THE
SPECIAL COURT (ECONOMIC OFFENCES) BENGALURU IN
C.C.NO.62/2019 AT ANNEUXRE-A.

THIS PETITION HAVING BEEN HEARD AND RESERVED
FOR ORDERS ON 08.10.2026, THIS DAY, THE COURT
PRONOUNCED THE FOLLOWING:

CORAM: HON'BLE MR. JUSTICE H.P.SANDESH

CAV ORDER
Heard the learned counsel for the petitioners and the
learned counsel for the respondent.

2. This petition is filed praying this Court to quash or
set aside the order dated 15.03.2019 passed by the Special
Court (Economic Offences), Bengaluru in C.C.No.62/2019 at
Annexure-A and pass such other order as deems fit in the
circumstances of the case.

3. Before considering the factual aspect, this Court
would like to extract the order of taking of cognizance dated
15.03.2019, which reads as follows:
“The complainant filed the complaint U/s.200 of
Cr.P.C alleging that accused-1 to 3 committed the
offence under sec.217(4) of the Companies Act,
2013 which is punishable under sec.217(6) of the
Companies Act, 2013. Perused the complaint and
cognizance is taken.

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CRL.P No. 1287 of 2020


The complainant is public servant; hence
recording of sworn statement is dispensed with. It is
averred that the accused-A-1 to 3 are the Directors
of M/s Super Royal Holidays (India) Pvt., Ltd., and
officers in default. It is alleged that during the course
of investigation proceedings, it came to the notice of
the inspector that the company is running Ponzi
scheme under which it has enrolled around 2,00,000
members. In order to ascertain further information
about the scheme being run by the company and
their modus operandi, the Inspector had issued
summons to the A-1 to 3 calling them to appear
before the Inspectors on 15-12-2017. In pursuant
that A-1 and 2 had appeared and deposed on oath.
A-3 is failed to appear. There by accused committed
the offence p/u/sec.217 (4) of the Companies Act,
2013. The complainant averments coupled with the
documents produced along with complaint at this
stage prima facie discloses that accused-1 to 3
committed the offence 217(4) of Companies Act,
2013 for violation of the provisions of the Companies
Act, 2013 which is p/u/s. 217(6) of Companies Act,
2013. Hence the following:

ORDER
Office is to register the case against the
accused-1 to 3 for the offence p/u/s.217(6)
of Companies Act, 2013 in III register and
issue summons to the accused-1 to 3
through RPAD r/by.16-04-2019.”

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CRL.P No. 1287 of 2020


4. The case of the respondent/complainant before the
Trial Court while filing the private complaint under Section 200
of Cr.P.C. invoking the offence under Section 217(4) of the
Companies Act, 2013, is that accused Nos.1, 2 and 3 are the
Directors of M/s. Super Royal Holidays (India) Pvt. Ltd. and
officers in default within the meaning of Section 2(60) of the
Companies Act, 2013. The Ministry of Corporate Affairs (MCA)
vide order No.03/312/2016-CLII dated 15.11.2017 had ordered
investigation of the accused concern under Section 216 read
with Section 210(1)(c) of the Companies Act, 2013. It is stated
that during the course of investigation proceedings, it came to
the notice of the Inspector that the company is running Ponzi
scheme under which it has enrolled around 2,00,000 members.
In order to ascertain further information about the scheme
being run by the company and their modus operandi, the
Inspectors had issued summons to the Directors viz.
Mr.Madhukara, Mr.Prashanth Badhirappan and Mr.Beru Kodige
Srinivasa Nayari Sathisha calling them to appear before the
Inspectors on 15.12.2017. Pursuant to that, only respondent
Nos.1 and 2 had appeared and deposed on oath. The
respondent No.3 failed to appear.

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CRL.P No. 1287 of 2020


5. Thereafter, the Directors were once again
summoned on 19.01.2018 and in response to the same,
Mr.Madhukara alone appeared on 24.01.2018 and he was
questioned about the affairs of the company. Mr.Madhukara
assured to submit the information asked for. Consequently, a
letter was also issued on 25.01.2018 to the Company calling for
information immediately based on the questioning on
24.01.2018. Company sought time for reply vide their letter
dated 13.02.2018. Further letter dated 14.02.2018 was issued
to the company to reply failing which their bank accounts may
be freezed. But the company, again sought time vide their mail
dated 22.02.2018 to furnish reply. However, no information
was furnished by the company as committed. Hence, invoked
the offence under Section 217(4) of the Companies Act, 2013
and filed the complaint. The Trial Court, having considered the
contents of the complaint and the allegation made in the
complaint, proceeded to take cognizance in terms of the above
order referred supra. Hence, the present petition is filed before
this Court.
6. The main contention of the learned counsel for the
petitioners before this Court is that the Court below failed to
appreciate that the petitioners have not committed any offence,

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CRL.P No. 1287 of 2020


much less the offence alleged against them by the respondent
in its complaint and committed an error in taking the
cognizance. The Court below having observed the fact that the
petitioners had appeared and deposed on oath before the
Inspector during the investigation, has wrongly taken
cognizance of the said complaint. The petitioners have promptly
answered and responded to every query raised by the
Inspector and though petitioner No.2 being physically
handicapped had taken the pain of attending before the
Investigating Officer/Inspector at Hyderabad as and when
required. The Investigating Officer/Inspector by seeing the
condition of petitioner No.2 had himself exempted him from
appearing for enquiry on two occasions. When such being the
case, there cannot be any violation of provisions of Section
217(4) of the Companies Act. The learned counsel also relied
upon the documents of Annexures-A to W in support of the
contention and relies upon the statement recorded as per
Annexures-J1 and J2 and copy of the list of documents
submitted to the Inspector as per Annexure-K. The learned
counsel submits that whenever the respondent called upon the
petitioners, the petitioners appeared and responded. The
learned counsel relies upon Annexures-L, M, N, O and P so also

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CRL.P No. 1287 of 2020


the copy of the letter dated 12.03.2018 as per Annexure-Q.
The learned counsel contend that the company auditor was also
asked to clarify certain aspects with respect to the deposits of
amounts and auditor vide his letter and e-mail dated
29.10.2018 had clarified the alleged discrepancies which were
mentioned in the letter dated 23.10.2018 and furnished
necessary statement of accounts in that regard. The learned
counsel also relies upon the letters dated 12.10.2018,
23.10.2018, 29.10.2018 and e-mail dated 30.10.2018 i.e.,
Annexures-R, S, T and V. The learned counsel would contend
that when all the details are furnished, there cannot be any
violation of Section 217(4) of the Companies Act and the
petitioners promptly attended the same. The learned counsel
also brought to the notice of this Court Section 217(4) and also
the provision of Section 206 of the Companies Act and contend
that there is no reason that the explanation given by the
petitioners is not satisfactory and no such opinion is formed
that reply and documents furnished are not satisfactory and
hence, there cannot be any prosecution against the petitioners.
7. Per contra, the learned counsel for the respondent
in her argument would vehemently contend that copy of the
investigation report dated 28.02.2018 is produced as document

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No.1 and the said report is submitted by the Inspectors along
with the covering letter of the Regional Director to the Director
General of Corporate Affairs. The said report is very clear that
the Inspectors have pointed out the violation of Section 217
and 143 of the Companies Act, 2013. The Inspectors have also
pointed out certain violations falling within the purview of
Income Tax and Customs and Central Excise Departments with
which the undersigned concurs. The learned counsel also relies
upon the document No.2 - letter dated 22.06.2018 issued by
the Joint Director of the respondent, wherein also details are
mentioned with regard to the main object and present business
activities, capital structure and share holding pattern and so
also managing pattern and financial results for the period of
last 3 financial years and working results and invest of
complaints and process of investigation and findings of the
investigation and such document No.2 is also very clear with
regard to the very modus operandi of the company and details
of summoning of the same is mentioned in point 11.2. The
espondent No.3 did not choose to even appear and comply with
the demand and the Directors have not co-operated in the
investigation process and violated the provisions of Companies
Act. The effort is made by the Inspectors for the purpose of

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CRL.P No. 1287 of 2020


finding further details about the commission paid and during
the course of investigation, it is ascertained from the said
member that the company pays 5% commission to him who in
turn brings 10 additional persons and gets 5% commission
again on the business brought by entire chain of members
below him. It is noticed from the latest financial statement as
at 31.03.2017 that the company is earning revenue from
membership fee and service charges to the tune of Rs.45.61
Crores and therefrom it is paying commission of Rs.31.06
Crores to its members/agents which is nothing but interest on
the deposits and Rs.2.09 Crores as achievers awards to
commission agents. Further, it is seen that around 73% of the
revenue earned is being returned to the commission agents
under the guise of commission and awards. This practice of the
company is not only unlawful but also beyond the established
prudent norms of the business.
8. The learned counsel also brought to the notice of
this Court document No.3 - copy of the show cause notice
dated 15.11.2018 issued by the respondent to the petitioners’
company. In the said report, it is stated that the company is
accepting cash deposits of more than Rs.20,000/- in
contravention of Section 269SS of Income Tax Act. The matter

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may be referred to the Income Tax Department for further
examination. In terms of document No.3 it is specifically stated
with regard to violation of Section 217 of the Companies Act.
These are the materials to be considered during the course of
trial and the Trial Court took the cognizance based on the
contents of the complaint and the documents placed before the
Court. Hence, there cannot be any quashing of the cognizance
order.
9. Having heard the learned counsel for the petitioners
and the learned counsel for the respondent, the points that
would arise for the consideration of this Court are:

(i) Whether the Trial Court committed an error in
taking the cognizance for the offence
punishable under Section 217(4) of the
Companies Act 2013?


(ii) What order?

Point No.(i):
10. Having perused the contents of the complaint,
specific averments are made in paragraph No.5 that accused
Nos.1 to 3 are the Directors of M/s. Super Royal Holidays
(India) Pvt. Ltd., and officers in default within the meaning of
Section 2(60) of the Companies Act. In paragraph No.7 specific

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CRL.P No. 1287 of 2020


accusation is made and also calling them to appear before the
Inspectors on 15.12.2017. Pursuant to which the petitioners
appeared and also given the statement on oath, but accused
No.3 did not appear and so also time was sought and time was
also given. No doubt, the learned counsel for the petitioners
also produces the documents at Annexures-R, S, T and V for
having given details for the month of October 2018. The Trial
Court while taking the cognizance taken note of the company is
running Ponzi scheme under which it has enrolled around
2,00,000 members. In order to ascertain further information,
notices are exchanged between them. The Trial Court taken
note of the fact that accused Nos.1 and 2 had appeared and
given statement on oath, but accused No.3 failed to appear.
The Trial Court taking into note the contents of the complaint,
comes to the conclusion that the complaint averments coupled
with the documents produced along with complaint prima facie
discloses that accused have committed the offence under
Section 217(4) of the Companies Act. The order is also very
clear for having taken the cognizance and issuance of
summons. While entertaining the complaint, the Court has to
look into the contents of the complaint and documents. No
doubt, certain documents are also produced before this Court

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as referred supra by the learned counsel for the petitioners and
given explanation. But the very contention of the respondent is
that the reply which they have given is not satisfactory and
specific accusation is made against the petitioners as per
document Nos.1 to 3, which have been relied upon by the
learned counsel for the respondent.
11. This Court also taken note of the factual aspects of
the case while considering the documents which have been
relied upon, particularly in paragraph Nos.11.1 and 11.2 salient
features of the scheme are mentioned and so also the
correspondence between the parties. An allegation is made
that its Directors have not co-operated in the investigation
process in spite of sufficient time was taken from 2017 to
October 2018. Specific allegations are made in paragraph
Nos.12 and 13 of document No.1. No doubt, when the reply
was given, proceeded to file the complaint in view of non-
compliance. The Trial Court applied its mind while taking
cognizance of the matter and issuing process and the matter
requires trial. The arguments canvassed by the learned
counsel for the petitioners relying upon the documents
produced by them could be used as defence during the course
of trial. The grounds which have been urged by the petitioners

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cannot be considered as a defence at this stage. At the time of
taking cognizance, the powers of the Trial Court i.e., Special
Court are limited and only can look into the contents of the
complaint and the documents produced. There cannot be any
mini trial at the time of taking cognizance and the Court need
not consider the evidence and only need to look into the prima
facie case for proceeding against the petitioners. Having
considered the order passed by the Trial Court, reasoned order
has been passed while taking cognizance and not any single
line order. It is settled law that only while rejecting the
complaint, the Trial Court has to give reasons. But while taking
the cognizance only to make out a case whether there is a
prima facie case. The Trial Court made it clear that the
complaint averments coupled with the documents produced
along with the complaint at this stage prima facie discloses that
accused Nos.1 to 3 have committed the offence punishable
under Section 217(4) of Companies Act and the same is an
application of mind. Hence, I do not find any force in the
contention of the learned counsel for the petitioners and those
contentions could be urged before the Trial Court at the time of
trial and the documents which have been relied upon could be

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used as a defence at the time of trial. Accordingly, I answer the
point in the negative.
Point No.(ii):
12. In view of the discussions made above, I pass the
following:
ORDER
The petition is dismissed.

Sd/-
(H.P.SANDESH)
JUDGE



MD