'Criminal Prosecution Cannot Be A Frolicsome Act': Karnataka HC Quashes Fraud Case Against Ex-Vihaan Director

The Karnataka High Court has recently quashed criminal proceedings against chartered accountant M.N. Gunasheela, a former director of Vihaan Direct Selling (India) Pvt Ltd, in connection with a complaint concerning the affairs of the company.

The Court also quashed a Look Out Circular issued against him.

Justice M. Nagaprasanna held that the complaint did not disclose any specific role attributable to Gunasheela. The Court also noted that the company's business operations commenced after he had ceased to be a director.

“Criminal prosecution against a person is a very serious thing. It cannot be a frolicsome act on the part of the respondent. The role of the accused must be clearly spelt out and not vaguely said that he might have been involved in the offence. There are a plethora of documents to demonstrate that the petitioner was not a Director and had nothing to do with the Company when the Company began its operations. If it were to be otherwise, the other two Investigating Agencies would not have given the petitioner a clean chit,” the court observed.

According to the case records, Gunasheela was appointed as a director on October 10, 2011. He resigned on February 29, 2012.

The complaint itself alleged that Vihaan Direct Selling commenced its business operations during 2013-14. The Registrar of Companies later issued a show-cause notice.

Gunasheela was subsequently arraigned as one of the accused in a complaint alleging fraud and false statements by the company and its directors.

The court noted that the complaint contained detailed allegations concerning the affairs of the company and the role of other directors. At the same time, it recorded that Gunasheela had served as a director for only four months and had resigned before the company commenced operations.

“On a blend of the aforesaid paragraphs, there is nothing that can be said against the petitioner. It is the case of the complainant itself that accused No.1/Company began its business operations in the year 2013-14, before which the petitioner had resigned. The complaint itself narrates that the petitioner was a Director for four months, but he was a former Director and, therefore, he should be prosecuted. The complaint is absolutely bald insofar as the petitioner is concerned,” the Court held.

The court also took note of investigations conducted by the Economic Offences Wing, Mumbai, and the CID Cyber Crime Wing, Bengaluru. It recorded that the petitioner's name had been dropped from the array of accused after the agencies considered his explanation.

“The petitioner is not an accused. Therefore, after accepting the reply of the petitioner by two Investigating Agencies – one under the Economic Offices and the other by the CID, Cyber Crime – the name of the petitioner was dropped from the array of accused. It is presumably that the petitioner was dropped for the reason that nothing was found against him and his reply was found satisfactory,” the Court observed.

Having regard to the absence of specific allegations against Gunasheela and the material indicating that he had resigned before the company commenced business operations, the Court held that the proceedings against him could not continue.

It accordingly quashed the criminal proceedings insofar as they related to him. The Court also quashed the Look Out Circular issued against him.