Supreme Court Quashes Complaint Alleging Fraud in Sale of Shares, Citing Abuse of Process and Delay

In a significant ruling, the Supreme Court of India, comprising a bench led by Justice B.R. Gavai, has quashed a complaint alleging fraud in the sale of shares. The court held that the complaint was an abuse of process and that there was an inordinate delay in lodging the complaint.

The case, titled Prakash Aggarwal v. Ganesh Benzoplast Limited and Another, arose from a dispute over an Inter Corporate Deposit (ICD) agreement. The complainant, Ganesh Benzoplast Ltd., had availed two ICD facilities from Morgan Securities and Credits Pvt. Ltd., with shares pledged as security. The accused, who were directors of Morgan Securities and Credits, were responsible for managing the company's affairs.

The complainant alleged that the accused had sold the pledged shares to themselves at a lower price, constituting fraud and breach of trust. However, the Supreme Court carefully examined the Inter Corporate Deposit Agreement (ICDA) and the Letter of Pledge (LoP) executed between the parties. It found that the accused had the authority to invoke the pledge and sell the shares as per the agreed terms.

Furthermore, the court noted that the complainant was aware of the sale of shares as early as 2001, during the arbitration proceedings initiated at that time. However, the complainant failed to take any action until much later, when it filed an application before the arbitrator in 2006 seeking details of the sale. The court deemed the subsequent filing of the complaint in 2011 as an inordinate delay.

Based on these findings, the Supreme Court held that the complaint was an abuse of process of law. It emphasized that the allegations made by the complainant were contrary to the terms agreed upon in the ICDA and the LoP. The court concluded that the complainant's attempt to convert a contractual dispute into a criminal case was unwarranted.

Supreme Court allowed the appeals filed by the accused and dismissed the complaint. The court also clarified that its observations and the dismissal of the complaint should not affect any proceedings regarding the arbitral award or any other legal actions pursued by the appellants.

PRAKASH AGGARWAL vs GANESH BENZOPLAST LIMITED