Dinesh Gupta vs. The State of Uttar Pradesh

INTRODUCTION:

In the significant case of Dinesh Gupta vs. The State of Uttar Pradesh, the Hon’ble Supreme Court delivered its judgment with considerable surprise upon discovering several crucial facts that had previously been concealed from both itself and the lower courts. This case centred on the non-repayment of a large loan, amounting to crores, provided by the complainant to the accused parties.

The Supreme Court condemned the unethical behaviour of litigants who mislead the court with baseless facts and claims, asserting that such individuals should face stringent penalties and conditions to deter such conduct. The judgment brought attention to a vital issue within the legal system: the imperative to thoroughly investigate litigations founded on falsehoods, including the hiding of facts and forum shopping.

This case stands as a warning and a call to action, advocating for the meticulous examination of litigations to ensure they are not rooted in deception. It emphasizes the need for courts to take a strong stance against those who seek to exploit the judicial process for personal gain. By doing so, the legal system can preserve its integrity, prevent the misuse of judicial resources, and ensure that justice is delivered based on truth and fairness.

FACTUAL MATRIX:

Karan Gambhir, the proprietor of M/s D.D. Global Capital Pvt. Ltd. (hereinafter referred to as “the Company”), is the complainant in FIR No. 4, which was lodged against Sushil Gupta, Rajesh Gupta, Dinesh Gupta, Baljeet Singh, and others. Three private limited companies, namely BDR, Gulab Buildtech, and Verma Buildtech, were also implicated as accused. The individuals Sushil Gupta, Rajesh Gupta, and Dinesh Gupta are identified as the promoters of these companies.
Only two of the accused, Dinesh Gupta and Rajesh Gupta, approached the High Court to seek the quashing of the summoning order and the FIR. During the hearing, no indication was provided that any other accused had pending matters before either the Supreme Court or the High Court.
The complainant alleges that his company was induced to provide short-term loans of ₹5,16,00,000 to Gulab Buildtech and ₹11,29,50,000 to Verma Buildtech. These loans were later converted into debt equity under the pretext of promising high returns from the real estate business.
The shares were allegedly allotted at an exorbitant price, resulting in the complainant’s company acquiring a 21% shareholding in Verma Buildtech and a 4.53% shareholding in Gulab Buildtech. A share pledge agreement was purportedly forged, suggesting it had been executed in favor of Sushil Gupta, one of the accused (who is not a party to the present appeal). Additionally, a scheme of amalgamation was devised by Gulab Buildtech and Verma Buildtech to merge these companies with BDR, significantly reducing the complainant’s shareholding percentage. The complainant asserts that no notice of the proposed amalgamation was served on the company, and the amalgamation was approved by the Delhi High Court. Furthermore, the share certificates were allegedly never physically delivered to the complainant.
The complainant further contends that when he requested the return of the loan with interest, the accused initially sought additional time, citing a downturn in the real estate market. Subsequently, the accused began ignoring the complainant’s requests. This prompted the complainant to seek legal recourse against the accused, requesting the registration of a case for cheating and forgery. The complaint was filed with the address listed as “C/o A & A Earth Movers, D-9, Sector-2, Noida Sector-20, Gautam Budh Nagar, U.P.”
Following an investigation, the police determined that a case was substantiated against the accused under Sections 420 (Cheating), 467 (Forgery of valuable security), and 120-B (Criminal Conspiracy) of the Indian Penal Code (IPC). A charge sheet was subsequently filed on December 29, 2020. The Chief Judicial Magistrate of Gautam Budh Nagar, through an order dated February 15, 2021, took cognizance of the matter and issued summons to the accused.
The appellants then filed petitions under Section 482 of the Criminal Procedure Code (Cr.P.C.) before the High Court, seeking to quash both the FIR and the summoning order dated February 15, 2021. These petitions were dismissed by a composite order of the High Court. Consequently, the appellants have challenged this decision in the present appeals.
The present appeals highlight complex issues related to financial transactions, corporate governance, and judicial processes in handling allegations of fraud and conspiracy within the corporate sector. The allegations against the accused involve significant amounts of money and claims of deceit and forgery, which have far-reaching implications for the stakeholders involved. The outcome of these appeals will likely set a precedent for how similar cases are adjudicated, emphasizing the importance of transparency and due diligence in corporate financial dealings and the judicial system’s role in addressing corporate fraud and maintaining legal and ethical standards in business practices.

ISSUES RAISED:

Is there a need for a review of the decision made by the Hon’ble High Court and for the FIR to be nullified?
Should civil proceedings be initiated instead of criminal proceedings in this matter?
Is it appropriate to uphold the decision rendered by the Hon’ble High Court?

CONTENTIONS OF THE APPELLANTS:

Mr. Kapil Sibal, Mr. Nakul Dewan, and Ms. Anjana Prakash, distinguished senior counsel for the appellants, contended that the complainant, who is the owner of the company, invested ₹5,16,00,000 in Gulab Buildtech and ₹11,29,50,000 in Verma Buildtech by acquiring equity shares. They highlighted that these investments were preceded by resolutions from the company’s Board of Directors explicitly approving the transactions. In a Board meeting on March 25, 2011, a resolution was passed authorizing the investment of ₹11,29,50,000 in Verma Buildtech’s equity shares. Similarly, on August 26, 2011, a resolution was passed approving the investment of ₹5,16,00,000 in Gulab Buildtech’s equity shares. Consequently, the complainant’s claim that these amounts were short-term loans contradicts the company’s records, which indicate these were intentional investment decisions.
In 2012, when the petition was filed seeking the amalgamation of Gulab Buildtech and Verma Buildtech with BDR, the Delhi High Court issued notice to all shareholders of the two companies on 09.07.2012 as per requirements. No objections were raised by the complainant or the company at that stage. On 20.02.2013, the scheme of amalgamation was approved by the Delhi High Court, pursuant to which the company became entitled to 3,74,280 shares of BDR. On 08.03.2013, Gulab Buildtech and Verma Buildtech requested the complainant to surrender the original share certificates to facilitate the issuance of new certificates.
Nearly one year after the amalgamation, on 31.01.2014, DD Global Capital Limited, the company of the complainant, filed an application before the Delhi High Court seeking the recall of the order of amalgamation, asserting that it was issued without notice to the company. The application was dismissed by the High Court on 15.03.2016, and the order attained finality as the company did not further challenge it. In those proceedings, a letter dated 08.10.2014, purportedly written by Sushil Gupta, one of the accused, claiming that the shares of the company with Verma Buildtech were pledged to him, was also submitted to the High Court.
More than two years after the dismissal of the company’s application by the Delhi High Court, the present complaint was filed with the police in Gautam Budh Nagar, based on which the FIR in question was registered on 29.07.2018.
The appellants argue that a purely civil dispute involving financial transactions between corporations is being misrepresented as a criminal case. Despite the fact that the company has no connection to Gautam Budh Nagar and all transactions occurred in New Delhi between New Delhi-based parties, the complaint was filed in Gautam Budh Nagar. Even the address provided by the complainant in the complaint, ‘C/o A & A Earth Movers, D-9, Sector-2, Noida Sector-20, Gautam Budh Nagar, U.P.,’ does not belong to the complainant or his company. These circumstances indicate that the intention was solely to harass the appellants.
In fact, the dispute among the parties has already been referred to arbitration by the Delhi High Court through an order dated 15.05.2019, and the company has already submitted its claim before the sole arbitrator.
These facts clearly demonstrate that no case has been established against the appellants. Furthermore, there are no allegations of document forgery against them. It was a straightforward business transaction, and coercive methods to recover dues should not be tolerated. In support of the appellants’ arguments, reference was made to the judgment of this Court in Randheer Singh v. The State of U.P. & others, highlighting the complete absence of judicial scrutiny while issuing the summoning order, which is entirely non-speaking in nature. Additionally, the High Court failed to consider the arguments raised by the appellants.

CONTENTIONS OF THE RESPONDENT:

On the opposing stance, Mr. Vikas Singh, a distinguished senior advocate representing the respondent-complainant, argued that a significant short-term loan was extended solely at the insistence of the accused parties.
Subsequently, purported allocations of shares were made but never effectively transferred to the complainant. The entities, namely Gulab Buildtech and Verma Buildtech, to which these shares were purportedly allocated, underwent amalgamation with BDR. However, despite being a shareholder, the complainant allegedly received no notification during this amalgamation process. Consequently, the amalgamation resulted in a substantial reduction in the company’s shareholding percentage.
Furthermore, emphasis was placed on a correspondence suggesting that the company had pledged its shares to Sushil Gupta, implying the potential involvement of forged documentation. Additionally, reference was made to an order dated 20.02.2013 issued by the High Court in Co. Pet. No. 287 of 2012, highlighting the interconnectedness between the accused individuals.
The financial documents of Gulab Buildtech and Verma Buildtech were also utilized to showcase that the sum advanced by the complainant was classified as ‘current liabilities,’ drawing upon Indian Accounting Standards to expound on the definition of ‘current liabilities,’ which encompasses short-term loans.
The crux of the argument presented is that the accused parties, allegedly acting in concert, perpetrated a substantial fraud against the complainant by deceitfully promising inflated returns. It is asserted that there are no deficiencies in the High Court’s judgment, and therefore, the appeals should be dismissed.

FINDINGS:

The court has reviewed the arguments presented by both parties and examined the evidence on record.
On July 29, 2018, an FIR was registered based on a complaint filed by the second respondent. However, discrepancies were noted regarding the addresses provided, suggesting an attempt to mislead jurisdiction. The complainant provided misleading addresses for D.D. Global and the accused parties, reflecting false jurisdiction.
The falsity of the addresses provided was established during the filing of the charge-sheet. Additionally, it was revealed that the complainant concealed material facts regarding the merger of Gulab Buildtech and Verma Buildtech with BDR.
Despite being aware of the merger, the complainant did not disclose relevant information and filed a complaint with the police years later, alleging criminal behaviour. The court noted a deliberate delay in initiating litigation and observed that the transaction in question was purely commercial in nature.
Furthermore, an arbitrator was appointed to settle the dispute among the parties, indicating the availability of alternative dispute resolution mechanisms.
Given these considerations, the court concluded that the FIR amounted to an abuse of the legal process and ordered its quashing. The respondent, Karan Gambhir, was directed to pay costs of ₹25 lakhs within four weeks, with the amount to be distributed equally to SCBA & SCAORA for the benefit of their members.

Date: January 11, 2024

ANALYSIS:

In the present case, Section 482 of the Code of Criminal Procedure (Cr.P.C) was effectively invoked by both the appellants and the court to address the issues at hand. The matter came to light during the final stage of appeal, where it became apparent that the respondent had made frivolous statements and claims with the intention of improperly characterizing a civil matter as a criminal case.

To bolster their arguments, the appellants cited the judgment of the Hon’ble Supreme Court in the case of Randheer Singh vs. The State of Uttar Pradesh & Ors. This legal precedent provided additional support to the appellants’ position.

A pivotal moment in the case occurred when it was discovered that the complainant had provided incomplete addresses for the accused individuals, Rajesh Gupta and Dinesh Gupta, falsely indicating them as residents of Sector 20, Gautam Budh Nagar, Uttar Pradesh. Similar inaccuracies were found in the case of Verma Buildtech and Gulab Buildtech. This deliberate manipulation of addresses was indicative of the respondent’s attempt to fabricate jurisdiction where none existed.

This revelation underscored the respondent’s ill-intentioned efforts to misrepresent the nature of the case, transforming what should have been a civil proceeding into a criminal matter. Such actions not only undermined the integrity of the legal process but also reflected a blatant abuse of legal mechanisms for personal gain.

CONCLUSION:

In the case of Dinesh Gupta vs. The State of Uttar Pradesh, presided over by the distinguished bench comprising Justice Vikram Nath and Justice Rajesh Bindal, renowned for their bold and principled judgments, a precedent of judicial integrity was set. Notable among their decisions is the case of Kusha Duruka vs. The State of Odisha, where the bench, in a display of unwavering commitment to justice, levied a fine of Rs. 10,000 on a litigant for attempting to deceive the court and disrupt the administration of justice, ultimately leading to the dismissal of the case.

In examining the matter at hand, it becomes evident that the inappropriate invocation of jurisdiction merely scratches the surface of a deeper issue. The crux of the matter revolves around agreements and financial transactions, squarely falling within the purview of commercial and civil laws. However, the respondent’s decision to exploit the criminal justice system suggests ulterior motives, potentially driven by personal vendetta rather than a genuine pursuit of justice, as aptly observed by the court.

This exploitation of the Indian criminal justice system not only tarnishes the image of the legal framework but also undermines the foundational principles of natural justice. Nevertheless, the judgment rendered in this case serves to bolster citizens’ trust in the legal system, reaffirming its commitment to the ethos of “by the people, for the people.” It underscores the judiciary’s unwavering dedication to upholding justice and ensures that the integrity of the legal process remains paramount, instilling confidence in the populace and reinforcing the notion that justice prevails for all within the Indian Legal System.

REFERENCES:

SHREYOSEE AICH

AMITY UNIVERSITY, NOIDA

Dinesh Gupta vs. The State of Uttar Pradesh

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