Karnataka High Court refuses to quash prosecution over alleged Ponzi scheme said to have enrolled 2 lakh members

The Registrar of Companies filed a complaint under Section 200 of the Code of Criminal Procedure, 1973, alleging that the petitioners and another director of Super Royal Holidays (India) Pvt. Ltd. had failed to provide information sought by inspectors investigating the company, thereby committing an offence under Section 217(4) of the Companies Act, 2013, punishable under Section 217(6).

The Special Court took cognizance and issued summons on 15 March 2019.

The petitioners sought to quash that order under Section 482 CrPC, contending that they had attended questioning and supplied the requested information; the respondent maintained that their replies were inadequate and that the investigation disclosed non-cooperation.

1. Whether the Special Court erred in taking cognizance of the alleged offence under Section 217(4) of the Companies Act, 2013.

2. What order should be made on the petition.

Section 217(4) of the Companies Act, 2013, was the provision under which the alleged offence was invoked, with Section 217(6) identified as the applicable punishment.

In considering cognizance, the court stated that the trial court must examine the complaint and supporting documents to determine whether they disclose a prima facie case; it need not conduct a mini-trial or assess the accused’s defence at that stage.

The petitioners’ documentary explanations could be raised as a defence at trial.

The complaint alleged that the petitioners were directors and officers in default, described the inspectors’ requests for information and the company’s responses, and was accompanied by materials relied on by the complainant.

The High Court held that these allegations and documents were sufficient, at the cognizance stage, to disclose a prima facie case under Section 217(4). The petitioners’ documents and explanations went to the merits of the defence and could not be weighed through a mini-trial in the Section 482 proceeding.

It dismissed the petition, leaving the petitioners to raise their defence before the trial court.