Karnataka High Court Refuses To Quash Case Against Super Royal Holidays Directors For Ignoring Summons

The Karnataka High Court on 17 October dismissed a petition filed by Madhukar and Prashanth Bhadrappan, directors of Super Royal Holidays (India) Private Limited, challenging criminal proceedings for alleged non-compliance with an investigation under the Companies Act, 2013.

Justice H.P. Sandesh held that the Special Court for Economic Offences, Bengaluru, had applied its mind to the complaint and accompanying documents before taking cognizance of the alleged offence under Section 217(4) of the Companies Act. The Bench held:

“At the time of taking cognizance, the powers of the Trial Court i.e., Special Court are limited and only can look into the contents of the complaint and the documents produced. There cannot be any mini trial at the time of taking cognizance and the Court need not consider the evidence and only need to look into the prima facie case for proceeding against the petitioners.”

The Ministry of Corporate Affairs ordered an investigation into Super Royal Holidays in November 2017. During the investigation, the Inspectors allegedly found that the company was operating a Ponzi scheme involving around two lakh members.

The Registrar of Companies (RoC) alleged that the directors had failed to furnish information sought by the Inspectors despite repeated summons and communications. It filed a complaint under Section 217(4) of the Companies Act, 2013. The Special Court took cognizance of the complaint and issued summons.

Challenging the proceedings, Madhukar and Prashanth Bhadrappan contended that they had cooperated with the investigation and furnished the required documents.

Opposing the petition, the RoC relied on the investigation report, which alleged that the company had earned Rs. 45.61 crore through membership fees and service charges while paying substantial amounts as commissions and awards to agents. The RoC also pointed to alleged violations of the Companies Act and the acceptance of cash deposits exceeding Rs. 20,000 in contravention of the Income Tax Act.

The High Court observed that the Special Court had examined the complaint and accompanying documents and found that they prima facie disclosed an offence under Section 217(4) of the Companies Act, 2013. It held that the directors' contentions could not be considered as a defence at the stage of taking cognizance and that the matter warranted a trial.

Further, the Bench observed that the Special Court had passed a reasoned order rather than a single-line order. It reiterated:

“It is settled law that only while rejecting the complaint, the Trial Court has to give reasons. But while taking the cognizance only to make out a case whether there is a prima facie case.”

Accordingly, the High Court dismissed the petition.

For Petitioners: Advocate Vijay Bhonsle

For Respondent: Advocate Anupama Hegde