Telangana High Court
M/S. Kausalya Avenues Pvt. Ltd. … vs Registrar Of Companies And … on 9 December, 2021Bench: G Sri Devi
HONOURABLE JUSTICE G.SRI DEVI
CRIMINAL PETITION No. 3718 of 2021
ORDER:
The present Criminal Petition is filed by the petitioners/A-1 to
A-5, under Section 482 of Cr.P.C., seeking to quash the proceedings in
C.C.No.28 of 2020 on the file of the Special Judge for Economic
Offences at Hyderabad. The 1st respondent filed a complaint under
Section 76-A of the Companies Act, 2013 (for short “the Act”) for
violation of Section 73 of the Act read with Companies (Acceptance of
Deposits) Rules, 2014.
The brief facts of the case are as under:-
The 1st petitioner is a private limited company incorporated on
13.05.1990. The main objects of the Company are, inter alia, to
undertake real estate business i.e., purchase, development and sale of
property/plots. Petitioners 2 to 5 are the Directors of the 1st
petitioner Company. In pursuance of its business, the 1st petitioner
has originally purchased land to an extent of around Ac.34.5 gts., in
Jagityal, Ac.9.02 gts., in Mancherial and Ac.7.18 gts., in Thotapally.
Most of the lands are situated in a radius of 7-10 kms. from the
District headquarters. After purchase of the said agricultural land,
the Company applied for conversion of such agricultural land into
non-agricultural land to the competent authorities. After conversion
of said lands into non-agricultural lands, the Company applied to the
competent authorities and obtained permission for development of
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such non-agricultural land into layout of plots for
residential/commercial housing. The plots of land were purchased
by the 1st petitioner for development into lay-outs of about 60/80/100
feet abutting state/national highways. To realize the full potential of
the plots of land purchased, the 1st petitioner has retained around
25% of the total land being developed into lay-outs for construction of
high-rise apartments for residential/commercial purposes, once the
lay-out and the surrounding areas are further developed. Since the
land on which high rise buildings would be constructed would fetch
a higher price, the 1st petitioner has agreed to sell such land in the
identified location of the piece of land at higher prices. To unlock the
funds invested in development of the lay-outs etc., the 1st petitioner
has offered to sell the land in its possession and for this purpose
entered into a written agreement/arrangement. Since real estate
projects involve long gestation period, in order to attract customers,
in some cases, the 1st petitioner has given an option to the potential
buyers (Applicants) to make part payment of the total sale
consideration i.e., 80% as an advance and to pay the balance
consideration of 20% within the period opted by the applicant in the
application. The intention behind this is to give an opportunity to the
buyer to fully satisfy himself as to the real progress of the layout and
its surrounding areas within the time opted by him and if so satisfied,
to pay the remaining 20% and complete the transaction by executing
a sale deed. To opt for this scheme of payment, the applicant is
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required to purchase a minimum of five square yards of land (and in
multiples thereof) with a put option with advance notice for
discharging his part of the obligation for paying the balance 20% of
the total land cost or seek refund of the advance paid by him, if not
satisfied with the actual development. Since the advance paid by the
applicant/buyer (for the purchase of undivided share in land) would
be utilized by the 1st petitioner for its business activities, till the date
of registration of the sale deed in favour of the applicant, the 1st
petitioner has offered to pay interest as per the agreed terms between
the Company and the applicant. The 1st petitioner has offered such
small plots of land for the reason that the applicants could get
together at a future point of time for jointly building an
apartment/high rise structure and earn high returns through small
investments. The 1st petitioner had to refund the advance sale
consideration received by it with interest to only those persons, who
have failed to pay the balance sale consideration, within a period
agreed for payment of the second and final instalment. The 1st
petitioner never failed to register the immovable property or refund
the advances in appropriate cases. The 1st petitioner company is a
part of ‘Kapil Group’ which is also into the business of chit funds. A
particular chit defaulter by name Guruzala Venkateswara Rao had
complained to the 1st respondent making false allegations that the 1st
petitioner is collecting deposits from general public in an
unauthorized manner. On the basis of the said complaint, the
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Government of India, Ministry of Corporate Affairs, ordered for
inspection of the books of accounts of the 1st petitioner under Section
206 (5) of the Companies Act, 2013. A letter was issued to the 1st
petitioner on 28.02.2019 and 18.03.2019 advising to keep the books
and accounts ready and an Inspecting Officer had visited the
registered office premises on 06.03.2019. Pursuant to inspection of
books of accounts under Section 206 (5) of the Companies Act, 2013,
the Regional Director, South East Region, Ministry of Corporate
Affairs, issued preliminary findings vide Letter, dated 26.07.2019
alleging violation of certain provisions of the Act including violations
under Section 73 of the Act. The 1st petitioner issued reply to the said
finding vide letter, dated 19.08.2019. Subsequently, an Inspection
report, dated 19.09.2019 was forwarded by the Regional Director
(SER) to the Director General of Corporate Affairs, Ministry of
Corporate Affairs. Without giving the petitioners an opportunity of
hearing, the 1st respondent launched prosecution against the
petitioners by filing complaint before the Special Judge for Economic
Offences, Hyderabad on 17.11.2020, which was taken cognizance as
C.C.No.28 of 2020 for the offences punishable under Section 73 of the
Act. The present Criminal Petition is being filed by the petitioners/
A-1 to A-5, to quash the proceedings against them in the above C.C.
Heard learned Counsel for the petitioners, learned Counsel for
the 1st respondent and learned Assistant Public Prosecutor for the 2nd
respondent and also perused the record.
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Learned Counsel for the petitioners would submit that the
complaint filed by the 1st respondent under the provisions of the Act
suffers from infirmities and is a gross abuse of process of law. He
further submits that the allegations against the petitioners under
Section 73 of the Act are not maintainable inasmuch as the amounts
accepted by the 1st petitioner do not come under the purview of
‘deposits’ as they are purely in the nature of an immovable property
transaction. He further submits that a perusal of the provisions of
Rule 2 (1) (c) (xii) (b) of the Companies (Acceptance of Deposits)
Rules, 2014, makes it very clear that the Rules exclude the advances
received towards sale consideration of immovable property, pursuant
to an agreement or arrangement from the purview of ‘deposit’,
provided that such an advance is adjusted against such property in
accordance with the terms of agreement or arrangement. The 1st
petitioner has entered into agreements/M.O.Us upon receipt of such
advances from customers. Further, the 1st petitioner has refunded the
advance sale consideration received by it, only to those persons, who
have not paid the entire sale consideration, or in other words, the 1st
petitioner had to refund the advance sale consideration received by it
with interest, to only those persons, who have failed to pay the
balance sale consideration, within the period agreed for payment of
the second and final instalment, as per the terms of the agreement.
He further submits that a perusal of the complaint reflects that the
allegation against the petitioners is that the amounts are being
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collected without an intention to sell the property, but the 1st
respondent has no cogent facts or evidence to prove the said
allegation and for this reason, the complaint is liable to be quashed as
the same is without any basis and that the 1st respondent has further
noted that transactions were concluded in respect of certain
transactions where money was received in full. He also submits that
the 1st respondent has acted on whimsical complaints of one Gurazala
Venkateswarlu, who had foisted many complaints against the 1st
petitioner, and filed many Writ Petitions before this Court, without
any basis. He further submits that Rule (2) (1) (c) (xii) (b) of the Rules
clearly excludes amount received as an advance for sale of
immovable property from the purview of deposits.
Learned Counsel for the 1st respondent would submit that the
1st petitioner has been collecting money as advance for sale of
property and paying interest on such advances and refunding money
without actual sale of such properties. As a result of which, Rule 2 (1)
(c) (xii) (b) of the Companies (Acceptance of Deposits) Rules, 2014 is
attracted to term such advance money collected as “Deposits”. It is
stated that since the advance money collected by the 1st petitioner
company as consideration for an immovable property under an
agreement of arrangement (M.O.U.), if such advance is not adjusted
against such property in accordance with the terms of agreement or
arrangement, comes under the definition of deposits. In the instant
case, the exemptions in the proviso to Rule 2 (1) (c) (xii) (b) of the
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Companies (Acceptance of Deposits) Rules, 2014 are not applicable to
the 1st petitioner company in view of the fact that the 1st petitioner
company has intentionally been collecting advance and paying
interest on such advance without actual sale of property for which
the agreement/M.O.U. was entered into between the 1st petitioner
company and its subscribers. He also submits that it is irrelevant to
state whether or not such collected advance is refunded as such
refund is not in accordance with the above Rule as the 1st petitioner
company never intended to adjust such collected money for the sale
of immovable property, which is evident from the Balance Sheets of
the 1st petitioner company showing the opening balance, amount
accepted during the year, amount refunded during the year, balance
lying at the end of the year and interest paid to the applicants during
the year. Thus, the petitioners have committed the offence
punishable under Section 76-A of the Act by violating Section 73 of
the Act.
A perusal of the material on record would show that basing on
the complaints lodged by one Guruzala Venkateswara Rao on
various dates alleging that the 1st petitioner company has been
collecting deposits through various schemes and has defaulted in
refund of matured amounts to the depositors, the 1st respondent
ordered inspection of the 1st petitioner Company. The record also
reveals that Guruzala Venkateswara Rao filed W.P.No.15333 of 2017
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before this Court. By an order dated 11.09.2017, a Division Bench of
this Court observed as under:-
“1. This is perhaps the 106th case filed by the petitioner
against the private respondents, seeking a Writ of
Mandamus to declare the action of the respondents 1 to 5 in
failing to conduct a proper investigation, pursuant to the
raids conducted by the 3rd respondent.
3. This is at least the second round of litigation that the very
Bench has come across from the very same petitioner against
the very same respondents. In W.P.Nos.11301, 13295, 1318
and 13159 of 2016, disposed of on 19.07.2016 by a Bench of
this Court, observed that the petitioner had virtually
declared a war on the contesting respondents before
different forums. It appears that the scores and scores of
writ petitions were filed seeking a direction against the
Income Tax Department, Enforcement Directorate, Central
Bureau of Investigation, local police and various other
authorities. The petitioner appears to have withdrawn some
of those writ petitions after advancing arguments. Despite
noting this, this Court took a lenient view and merely closed
W.P.No.11301 of 2016 and batch, lastly on 19.07.2016, after
making certain observations.
4. After this Court closed the last of the series of writ
petitions on 19.07.2016, there appears to have been an
income tax raid on 07.04.2017 and 08.04.2017 in the premises
of the 6th respondent Company. Upon seeing news items in
the print and electronic media that a few crores had been
recovered during the raids, the petitioner got motivated once
again, commenced war against the respondents and has
come up with the present writ petition. But, as we have
pointed out earlier, the writ Court is not intended for people
to settle private scores. The war launched by the petitioner
has gone unabated from the year 2011 for the past six years.
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Every Court has taken a lenient view, even while dismissing
the writ petitions of the petitioner, which has perhaps
emboldened him to again and again make an attempt
through this Court to settle a private dispute that he has.
Therefore, we are of the considered view that it is high time
that the abuse of process of Court is put an end to by
imposing costs. Hence, the Writ Petition is dismissed. The
petitioner shall pay costs of Rs.50,000/- to the High Court
Legal Services Committee, within a period of eight (8) weeks
from today.”
Therefore, I find considerable force in the contention of the
petitioners that the said Guruzala Venkateswara Rao foisted many
false complaints against the 1st petitioner company in order to settle
his personal scores with the 1st petitioner and the other group of
companies. Further, the said Guruzala Venkateswara Rao is neither
allottee nor he is in any way directly involved or linked with the
business transactions of the petitioners.
At this stage, the short point that arises for consideration is
“whether the amounts collected by the petitioners for sale of
immovable property as advance would come under the purview of
‘deposits’ or would exempt from the purview of ‘deposits’ by virtue
of Rule 2(1) (c) (xii) (b) of the Companies (Acceptance of Deposits)
Rules, 2014”?
Before proceeding further, it would be appropriate to refer to
Rule 2 (1) (c) (xii) (b) of the Companies (Acceptance of Deposits)
Rules, 2014, which reads as under:-
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“(c) “deposit” includes any receipt of money by way of
deposit or loan or in any other form, by a company, but does
not include –
(xii) any amount received in the course of, or for the
purposes of, the business of the company,-
(a) Xxxx
(b) as advance, accounted for in any manner whatsoever,
received in connection with consideration for property
under an agreement or arrangement , provided that such
advance is adjusted against the property in accordance
with the terms of agreement or arrangement;
Provided that if the amount received under items (a), (b)
and (d) above becomes refundable (with or without
interest) due to the reasons that the company accepting
the money does not have necessary permission or
approval, wherever required, to deal in the goods or
properties or services for which the money is taken, then
the amount received shall be deemed to be a deposit
under these rules: Explanation.- For the purposes of this
sub-clause the amount referred to in the first proviso
shall be deemed to be deposits on the expiry of fifteen
days from the date they become due for refund.”
In the complaint itself the 1st respondent has stated that the 1st
petitioner has been intentionally collecting money as advance for sale
of property, entering into M.O.U. and paying interest on such
advances received without the actual sale of property. Further, none
of the persons, who have paid the advance amount for sale of
immovable property, have not made any complaint against the
petitioners. The proviso to Rule 2 (1) (c) (xii) (b) makes it very clear
that only when the amount becomes refundable (with or without
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interest) due to the reasons that the company accepting the money
does not have necessary permission or approval wherever required,
to deal in the goods or properties or services for which the money is
taken, then the amount received shall be deemed to be a deposit
under the respective rules. Admittedly, the 1st petitioner company
had purchased the agricultural land and after obtaining the
permission from the competent authorities for conversion of
agricultural land into non-agricultural land, the 1st petitioner also
obtained permission for development of the land into layout of plots
for residential/commercial housing. To unlock the funds invested in
development of the lay outs etc., the 1st petitioner company had
offered to sell the land in its possession and for this purpose entered
into written agreement/arrangement. By virtue of proviso to Rule 2
(1) (c) (xii) (b) of the Companies (Acceptance of Deposits) Rules, 2014,
the advances received by the 1st petitioner for sale of immovable
property are exempted from the purview of the deposits.
Having regard to the facts and circumstances of the case and
in view of the proviso to Rule 2 (1) (c) (xii) (b) of the Companies
(Acceptance of Deposits) Rules, 2014, I am of the considered view
that continuation of proceedings against the petitioners/A-1 to A-5
would amount to abuse of process of the Court.
For the aforementioned reasons, the Criminal Petition is
allowed and the proceedings initiated in C.C.No.28 of 2020 on the file
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of the Special Judge for Economic Offences at Hyderabad, against the
petitioners/A-1 to A-5 are hereby quashed.
As a sequel thereto, Miscellaneous Petitions, if any, pending in
this Criminal Petition shall stand closed.
____________________
JUSTICE G.SRI DEVI
09.12.2021
Gsn
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