The Supreme Court recently quashed a First Information Report registered against the Standard Chartered Bank and Starship Equity Holding Ltd. in relation to a share escrow agreement between two entities.
The court observed that the criminal case against the bank was a "gross abuse of the process of law."
The Escrow and Settlement Transaction Agreement was entered into in 2007 between Corsair and Katra and Standard Chartered Bank, Mauritius. The respondent, Victor Program Pvt Ltd, agreed to sell 13,455 shares of Tamil Nadu Mercantile Bank unconditionally and irrevocably to the entities identified by Corsair for Rs. 325,368,810.
Starship Equity Holding Ltd. (Starship) was identified as an independent investor for the purchase of shares.
On 13.05.2007, the Tamil Nadu Mercantile Bank approved the transfer of shares in favor of respondent Vector. On the very same day, the shares were further transferred, and the same were deposited with the Standard Chartered Bank, India, which has its branch in Mumbai. Respondent Vector, after the completion of the said transaction, received a sum of Rs.32,53,68,810/- on 15.05.2007.
The valuation of the shares increased multifold thereafter. Having lost a fortune by its own decision, respondent Vector made an abortive attempt by filing a civil suit in the year 2011 seeking termination of the Escrow Agreement and return of the said shares. The Bombay High Court refused relief to it in the civil proceedings.
A few days after the High Court division bench dismissed its appeal, Vector filed a criminal complaint in 2016. The share certificates were seized in the criminal proceedings as per Section 93 CrPC. Offenses under Sections 406, 409, 420, 108-A, 109, and 120-B of the IPC, 1860, were invoked in the FIR registered by Indiranagar Police Station, Bangalore.
As the Karnataka High Court refused to quash the FIR, the bank approached the Supreme Court.
A bench of Justice MM Sundresh and Rajesh Bindal held that this was a fit case where the High Court could have exercised its inherent powers under Section 482 of the Code of Criminal Procedure for quashing the criminal proceedings against the Appellants under Sections 406, 409, 420, 420,108A and 109 and 120B of the Indian Penal Code, 1860.
The Supreme Court found that there were no materials to support the FIR. Also, many transactions were suppressed.
The court observed:
"It is not in dispute that respondent Vector signed the documents, transferred the shares, and received the money. All these transactions were completed way back on 15.05.2007.
It is only thereafter, by way of an afterthought, that respondent Vector made an abortive attempt by way of filing a civil suit seeking termination of the Escrow Agreement and return of the escrowed shares. After getting adverse orders at the hands of both the learned single judge and the Division Bench of the Bombay High Court, a criminal complaint has been filed immediately thereafter.
"There is no contra-material to hold that any other criminal proceedings have been initiated against the appellants. It is the respondent-Vector who was the beneficiary of the transaction and received money at the relevant point in time. Therefore, we have no hesitation in holding that the High Court has committed an error in not considering the relevant materials in their correct perspective, especially the well-merited decisions of the Bombay High Court. The power under Section 482 of the Code of Criminal Procedure, 1973, as it stood at the relevant point in time, though expected to be exercised sparingly, shall be invoked when the pendency of the criminal proceedings would result in a gross abuse of the process of law. This is a fit case where the High Court ought to have exercised the said power."
Case : Standard Chartered Bank v State of Karnataka and others, Starship Equity Holding Ltd v State of Karnataka and others
