Chekka Guru Murali Mohan & Anr Vs State of Andhra Pradesh (Andhra Pradesh HC)
Conclusion: Insider trading was only made an offence in India under the SEBI Act, 1992 and it essentially deals with the sale and purchase of securities in the field of stock market based on nonpublic material information. No provision akin to Section 12-A and 15-G of the SEBI Act was incorporated in IPC by the Parliament relating to private sale transactions of purchase or sale of land which was an immovable property by invoking the said concept/theory of insider trading.
Held: The main case of prosecution was that assessee who purchased the said lands during the period from June, 2014 to December, 2014 got prior information regarding the exact location of the capital city unauthorisedly from higher officials in the Government and the political leaders and based on the said information they have purchased the said lands from the owners of the said lands and at that time they did not disclose to the owners that the capital city is going to come within the said area and thereby cheated the sellers of the land and they derived monetary benefit on account of increase in the land value subsequently, after location of the capital in that area was officially announced and this had resulted into loss to the owners of the land who sold the same oblivious of the fact that the capital city was going to come in that area. The crucial question that arose for consideration was even if the said version of the prosecution was to be taken as true at its face value, whether it constitute any offences punishable under Sections 420, 409, 406 and 120-B of IPC or not. It was held that insider trading is only made an offence in India under the SEBI Act, 1992 and it essentially deals with the sale and purchase of securities in the field of stock market based on nonpublic material information. It is a special enactment which specifically and exclusively deals with the offences relating to sale of securities in the stock market. Insider trading is not made an offence specifically under the Indian Penal Code. No provision akin to Section 12-A and 15-G of the SEBI Act is incorporated in IPC by the Parliament relating to private sale transactions of purchase or sale of land which is an immovable property by invoking the said concept/theory of insider trading. Assessee had no legal obligation to disclose the information relating to latent advantages in purchasing the land to the sellers at the time of buying the said land. Therefore, it did not amount to dishonest concealment of fact as contemplated under the Explanation appended to Section 415 IPC. It did not amount to any deception under Section 420 IPC read with Section 415 IPC. The sellers did not sustain any loss on account of the said sale transactions. No element of criminality was involved in the sale transaction. Therefore, the offence of insider trading was totally alien to our criminal law under IPC. It was a concept or offence totally unknown to our criminal law under the Indian Penal Code. Andhra Pradesh High Court had quashed criminal cases filed in connection with the alleged ‘insider trading’ in land transactions at Amaravati.
FULL TEXT OF THE JUDGMENT/ORDER OF ANDHRA PRADESH HIGH COURT
This batch of Criminal Petitions, under Section 482 Cr.P.C., are filed, seeking quash of the common F.I.R. in Crime No.49 of 2020 of C.I.D.P.S., A.P., Amaravati of Mangalagiri, registered against the petitioners for the offences punishable under Sections 420, 409, 406 and 120-B of I.P.C.
2) A person by name Sri Salivendra Suresh of Velagapudi village, who is totally a stranger to the sale transactions in question, which are sought to be impeached on the ground of playing fraud and cheating the sellers of the land by the petitioners, who are purchasers of the lands, lodged a report with Mangalagiri Police.
3) Synoptic outline of the contents of the report germane to dispose of these Criminal Petitions may be stated as follows:
(a) It is alleged in the report that the de facto complainant is a resident of Velagapudi village, which is situated within the Capital Region Development Authority (hereinafter called as “C.R.D.A.”). He has been following the news being published and the debates in the Legislative Assembly relating to the irregularities that took place in respect of the lands situated within the capital area. There has been no capital for the State of Andhra Pradesh after the erstwhile common State of Andhra Pradesh was bifurcated into two States i.e. the State of Telangana and the State of Andhra Pradesh. Therefore, as per the Andhra Pradesh Reorganisation Act, Sivaramakrishna Committee was constituted to decide as to where the capital for the residuary State of Andhra Pradesh is to be located. The then Chief Minister Sri Nara Chandra Babu Naidu brought the Capital Region Development Authority Act in the month of December, 2014 and declared that 25 villages which are adjacent to the Krishna River will be the capital region.
(b) However, even prior to it several people who got acquaintance with important people in the Government got information as to where the capital would be located and they purchased the lands within the said area and adjacent to the C.R.D.A. region from the farmers of that locality deceptively.
(c) Whileso, after the month of July, 2019 it has been widely published in the media that persons who got close acquaintance with the important persons in the erstwhile government purchased lands in their names and in the name of their companies on the basis of the prior information got to them regarding location of the capital city and that the farmers, who have no information regarding location of capital in their area, have sold the lands. He also came to know when the Bill was introduced in the Assembly by the present Government to abolish the C.R.D.A. enactment, during the debates took place in the Assembly, that officials who worked in the Government in high positions and the political leaders who are in power at that time have purchased lands in their names and in binami names by using their black money within the C.R.D.A. region and adjoining the said C.R.D.A. region for paltry sale consideration and thereby had monetary gain for them. All this was done as per the conspiracy hatched up between the officials and the political leaders and the persons who purchased the said lands.
(d) Therefore, when he verified the sale transactions that took place in the C.R.D.A. region in the website of the Registration Department, it came to light that (1) Lalitha Super Specialty Hospital; (2) Sri Thottempudi Venkateswara Rao, Cherukuri Tejaswi of North West Holdings Private Limited which belongs to them; (3) Sri C. D. Murali Mohan and Sri B.V.R.Sarma to whom Vertex Homes Private Limited belongs; (4) Gayathri Realtors Limited, Chennai; (5) Smt.Kilaru Srihasa W/o.Kilaru Rajesh, who is close associate of Sri Nara Chandra Babu Naidu and Sri Nara Lokesh and (6) Good Life Estates, Vijayawada, (petitioners herein) have purchased vast extent of lands in the said capital region area and near to it. It is stated that as per the information collected by the de facto complainant, even before officially declaring the area where the capital is going to be located, the officials of the Government and political leaders clandestinely divulged the information relating to area where the capital is going to be located to their kith and kin and to their men and companies and on the basis of the said information furnished, the aforesaid persons and companies have purchased the lands from the farmers of the said area. Therefore, the farmers who sold the lands have been cheated and deceived. So, it is alleged by the de facto complainant in the report that there has been a conspiracy hatched up between the highly placed government officials and the political leaders on one hand and the persons who purchased the lands during the period from June, 2014 to December, 2014 before officially declaring the location of the capital area in as much as the official information has been clandestinely leaked to the persons who purchased the lands from the farmers. Therefore, he prayed in his report to enquire into the matter and take necessary legal action in this regard.
4) The said report was lodged on 07.09.2020 at about 13.30 hours by the de facto complainant with the police. Initially, an entry was made in the General Diary i.e. G.D. by the police. As per record, as per the instructions of the Additional Deputy General of Police, C.I.D. A.P., preliminary enquiry was ordered on the allegations set out in the said report. Accordingly, Sri R.S. Kishore Kumar, Inspector of Police, CID, RO, Vijayawada, has conducted a preliminary enquiry relating to the said allegations. He has submitted his preliminary enquiry report to the Addl. Dy.G.P., CID, Mangalagiri, on 16.09.2020 stating that he has enquired one Marella Nagi Reddy S/o.Rami Reddy of Kaza village and he stated that in the month of June, 2014 one Chilakapati Srinivas of Bethampudi village approached him and asked him to sell his land to Good Life Estates Private Limited and he refused. Thereafter, he again came to him and pressurized him to sell the property for Rs.40.00 Lakhs and accordingly, he sold the said land to Good Life Estates Private Limited represented by K.Venkateswarlu and J.Srinivasa Rao, and that few months thereafter the then Government announced location of capital at Thulluru area and Bethempudi village is also located in the capital region and consequently, the value of the land has increased. It is also stated in the preliminary enquiry report that the Inspector of Police also examined one Pandi Hanumantha Rao S/o.Satyanarayana of Nehru Nagar, Guntur, and he stated that he had land in Namburu village and in the month of July, 2014 he sold his land to one V.V.R. Varma and C.V. Murali Mohan, who are the representatives of Vertex Homes Private Limited and later the capital area was announced and Namburu village is just abetting the core capital area and as such value of the said lands is also increased and when the aforesaid persons who sold the lands questioned the above purchasers in this regard over phone as to why they purchased the lands without disclosing the proposal of location of the capital at the said lands that the purchasers threatened them with dire-consequences.
5) Based on the said preliminary enquiry report dated 16.09.2020 wherein it is stated that the preliminary enquiry revealed that the contents of the report lodged by the de facto complainant disclose commission of a cognizable offence, the present F.I.R. was registered as per the instructions of the Addl. Dy.G.P., CID, AP., Mangalagiri, in Crime No.49 of 2020 for the offences punishable under Sections 420, 409, 406 and 120-B of IPC. The said case is now under investigation.
6) The petitioners in this batch of Criminal Petitions, who are all shown as accused in the aforesaid F.I.R., sought quash of the said common F.I.R. registered against them on the ground that the facts of the case even if they are taken to be true at its face value do not constitute any offence punishable under Sections 420, 409, 406 and 120-B of IPC and allowing the proceedings to be continued against them pursuant to the registration of the aforesaid F.I.R. would amount to abuse of process of law.
7) Learned Public Prosecutor appearing for the State filed counter-affidavit and additional counter-affidavit along with material papers opposing the claim of the petitioners for quash of the F.I.R. The 2nd respondent who is the de facto complainant also filed his counter-affidavit opposing the claim of the petitioners to quash the F.I.R. The counter-affidavit of the 2nd respondent de facto complainant is nothing but verbatim reproduction of the contents of the F.I.R. The pleas taken by the learned Public Prosecutor in his counter-affidavit and additional counter-affidavit would be dealt with while referring to the elaborate arguments addressed by the learned Advocate General on behalf of the State, to avoid repetition of the pleas. It would be suffice to make a detailed reference of the submissions made by the learned Advocate General on behalf of the State which covers the pleas taken in the counter-affidavit and additional counter-affidavit filed by the prosecution.
8) When these Criminal Petitions came up for final hearing before this Court, I have heard Sri Siddardha Luthra, learned senior counsel, Sri Posani Venkateswarlu, learned senior counsel, and other learned counsel for the petitioners Sri K.S. Murthy, Sri Ginjupalli Subba Rao, Ms.S.Pranathi, Sri A.K. Kishore Reddy and Sri M.V. Subba Reddy, in all these Criminal Petitions and the learned Advocate General, assisted by the learned Public Prosecutor for the State at length. Heard Sri O.Kailashnath Reddy, learned counsel appearing for the de facto complainant. Also considered the written submissions filed by learned Public Prosecutor.
RIVAL CONTENTIONS:
9) Learned counsel for the petitioners and learned senior counsel Sri Siddardha Luthra, vehemently contended that the facts of the case do not constitute any offences punishable under Sections 420, 409, 406 and 120-B of IPC for which F.I.R. was registered against the petitioners. They would submit that many of the petitioners who are in the field of business have only purchased the lands in the process of developing their business activity in the field of real estate and in the construction field. Therefore, purchasing lands for a valid consideration under registered sale deeds does not amount to commission of any offence.
10) It is contended that the news relating to location of capital for the newly carved out State of Andhra Pradesh between the Krishna District and the Guntur District adjacent to Krishna river and the highway between the Krishna District and the Guntur District is afloat and has been in speculation from the time when the Andhra Pradesh Reorganisation Act for bifurcation of the common State of Andhra Pradesh was passed in the Parliament in the month of March, 2014. They would contend that even when the government was formed in the month of June, 2014, that the then Chief Minister publicly announced immediately after his swearing in ceremony on 09.06.2014 that the Government is contemplating to locate the new capital for the State of Andhra Pradesh in between the Krishna District and the Guntur District by the side of the Krishna river and the same has been widely published in all widely circulated newspapers. Even subsequently also the news relating to the proposal of the Government to locate the capital between the Krishna District and the Guntur District has been continuously published in various widely circulated Telugu and English newspapers. Therefore, the proposal of the Government to locate the capital between the Krishna District and the Guntur District adjacent to Krishna river is very much in the public domain and it is not a non-public information either in the Government circle or in the public circle. Therefore, they would contend that if the petitioners who got information through the news published in the newspapers regarding the proposal of the Government to locate the capital in the said area purchase any lands in the said area which are willingly sold by the owners of the said lands for a valid sale consideration that it does not amount to any offence under law and no criminal liability can be attributed to the petitioners in the given facts and circumstances of the case.
11) Therefore, they would contend that launching criminal prosecution against the petitioners on the alleged vague report lodged by a stranger to the said sale transactions at the instance of some vested interests who are behind him and on the basis of the alleged statements said to have been given by the sellers of the land subsequently after lapse of six long years of selling away their lands, during the course of investigation alleging that the fact that the capital is going to be located in the said area where their lands are situated is not disclosed to them before purchasing the lands and that there is hike in the price of lands subsequent to declaration of the capital officially by the Government, clearly amounts to abuse of process of law. Therefore, learned counsel for the petitioners prayed to quash the F.I.R. on the ground that criminal prosecution in the said facts and circumstances of the case is not legally maintainable against them.
12) It is finally contended by the learned Counsel for the petitioners that the de facto complainant, who is a stranger to the sale transactions and who did not sustain any loss on account of the said sale transactions, has no locus standi to lodge the said report with the police and initiate criminal prosecution against the petitioners.
13) Per contra, learned Advocate General with the able assistance of Sri R.Srinivasa Reddy, learned Public Prosecutor for the State of Andhra Pradesh, vehemently contended that the contents of the F.I.R. reveal that the petitioners, who have purchased the lands within and abetting the capital region got prior information from the top officials working in the Government and from the political leaders in the Government with whom they got close acquaintance regarding exact location of the capital area and the proposed villages which would come within the purview of the capital area and based on the prior information unauthorizedly furnished to them that they purchased lands from the farmers without disclosing to them that the capital city is going to be located at their villages and the said concealment of material fact amounts to cheating the sellers in as much as, as per the explanation appended to Section 415 IPC makes it clear that a dishonest concealment of fact is a deception within the meaning of the said Section. Therefore, he would contend that there has been a conspiracy between the petitioners who purchased the lands and the top government officials who are working in the Government at that time and the political leaders relating to unauthorized disclosure of the information relating to location of capital and as such these facts which are supported by the statements given by some of the vendors of the lands during the course of investigation prima facie make out the offences punishable under Section 420 of IPC and also under Section 120-B of IPC. So, the learned Advocate General would vehemently contend that the matter requires deep probe to unearth the said conspiracy hatched up between the petitioners on one hand and the top government officials working at that time and the political leaders.
14) Repelling the contention relating to the locus standi of the de facto complainant to lodge the report, learned Advocate General would submit that the concept of locus standi is alien to criminal law and any person who got information relating to commission of offence is legally entitled to lodge report to set the criminal law into motion except only in certain cases which are carved out in Sections 195 to 199 of Cr.P.C. which require locus standi and as the present offences are not within the purview of Sections 195 to 199 Cr.P.C., the contention raised by the petitioners regarding the locus standi of the de facto complainant to lodge the report has no merit.
15) He would further contend that as per Section 55(5)(a) of the Transfer of Property Act, the buyer is bound to disclose to the seller any facts as to the nature or extent of seller’s interest in the property of which the buyer is aware, but of which he has reason to believe that the seller is not aware, and which materially increases the value of such interest. Therefore, the petitioners being the buyers of the land are under the legal obligation under Section 55(5)(a) of the T.P. Act to disclose to the seller that the capital is going to be located in the said area and as they did not disclose the said fact before purchasing the lands and concealed the said fact it would clearly come within the purview of the explanation appended to Section 415 of IPC of dishonest concealment of fact which is a deception within the meaning of the said section. Therefore, he would submit, that a clear case of Section 420 IPC is made out. So, he contends that there is no merit in the contention of the petitioners that the facts of the case do not constitute any offence punishable under Section 420 IPC and in fact the facts of the case clearly constitute the offences punishable under Sections 420 and 120-B of IPC.
16) The learned Advocate General then contended that the employees working in the concerned section in the secretariat, who are involved in preparing the G.Os. in determining the area covered by C.R.D.A. gave statements under Section 161 Cr.P.C. and under Section 164 Cr.P.C. before the police and the learned Magistrate respectively during the course of investigation that some irregularities have taken place in preparing the draft G.Os. without mentioning the names of the villages covered by the said capital region which are kept under secret and as such these statements prima facie establish that some illegalities and irregularities took place in the matter of preparing the said G.Os. which also establish conspiracy as alleged by the prosecution.
17) He would also submit that these facts relatively also establish that there has been offence of insider trading on account of the conspiracy hatched up between the higher officials in the government, political leaders of the then Government and the petitioners who purchased the aforesaid lands which requires deep probe during the course of investigation. Therefore, the learned Advocate General prayed for dismissal of these Criminal Petitions.
18) In reply to the aforesaid contentions raised by the learned Advocate General on behalf of the State, learned Senior Counsel Sri Siddhardh Luthra, would submit that Section 55(5)(a) of the T.P. Act only imposes an obligation on the buyer to disclose to the seller only a fact relating to the nature and extent of the seller’s interest in the property which may materially increase the value of such interest and it does not cover the information relating to the reason for purchase of the said lands by the buyer or any future benefit that they may derive in respect of the said lands. Therefore, learned Senior Counsel would submit that the non disclosure of the fact that the capital is going to come within the said region to the seller even if true it does not amount to concealment of material fact as required under Explanation appended to Section 415 IPC. He would then contend that the mere fact that there is subsequent increase in the value of the property on account of location of capital in the said area cannot afford a ground to prosecute the petitioners for the offence punishable under Section 420 IPC. It is contended that as per Section 55(vi)(a) of the T.P. Act, the buyer is entitled to the benefit of any improvement in, or increase in value of, the property, and to the rents and profits thereof when the ownership of the property has passed to him. Therefore, when the buyer is legally entitled to the benefit of increase in the value of the property on account of the ownership of the property that was passed to him, the sellers cannot legitimately complain that they were cheated by the buyers as there is subsequent increase in the value of the property.
19) The learned Senior Counsel Sri Siddhardh Luthra further contends that the offence of insider trading is not made an offence under any of the provisions of the IPC and it relates only to the fraud played pertaining to sale and purchase of securities and bonds in the stock market and it is only made an offence under The Securities and Exchange Board of India Act, 1992 (herein after called as “SEBI Act”). So, he would contend that invoking the said theory of insider trading even relatively or contextually to prosecute the petitioners in this case for the offences punishable under the IPC is legally unsustainable. He finally contends that the alleged irregularities and illegalities spoken to by some of the official witnesses in their 164 Cr.P.C. statements said to have been given before the learned Magistrate, at best show that there is contravention of the business rules, and even if it is true, they do not establish anything incriminating against these petitioners who have nothing to do with the said preparation of G.Os. and as such the said statements do not in any way support the case of the prosecution against these petitioners.
20) Having regard to the magnitude of the vital issues and contentions raised by the prosecution and also the petitioners, as elaborately discussed supra, and particularly as the findings that may be recorded in this judgment in the given facts and circumstances of the case, would have far reaching consequences on all the sale transactions that have already taken place and that may take place in future, I have given my earnest, anxious and thoughtful consideration to the aforementioned rival contentions raised by both the parties.
0) Although arguments have been also addressed by learned Counsel appearing for some of the petitioners in these Criminal Petitions that the present Government in order to wreak vengeance against the petitioners and against some of the persons who have some acquaintance with the erstwhile Government, the present prosecution has been illegally and maliciously launched to harass and humiliate the petitioners by distorting the facts to drag the petitioners into the alleged conspiracy with the Government officials by concocting a false story, this Court is of the considered view that without entering into any controversy relating to the said motive attributed to the present Government by the petitioners, that these Criminal Petitions have to be decided dispassionately irrespective of the motives that are attributed on either side, strictly adhering to question of fact, question of law, and interpretation of the legal provisions relevant in the context to determine the present controversy involved in these Criminal Petitions. The Court is primarily required to see in the given facts and circumstances of the case, whether the facts of the case emanating from the record even taken to be true at its face value, constitute any offences punishable under Sections 420, 409, 406 and 120-B of IPC for which the F.I.R. is registered. If the facts of the case prima facie constitute all or any one of the offences for which the F.I.R. is registered, the Court shall allow the investigation to go on to find out the truth or otherwise of the said allegations. If the facts of the case do not constitute any offences for which the F.I.R. is registered and no offence is made out from the facts of the case, then it amounts to abuse of process of law to allow the criminal proceedings initiated pursuant to registration of F.I.R. to be continued against the petitioners and the F.I.R. registered against them is liable to be quashed. So, the main focus of the Court should be on the vital issue of ascertaining whether the facts of the case constitute any offence or offences for which the F.I.R. is registered or not.
22) This is a very peculiar and very interesting case and in fact a case of first of its kind where the prosecution seeks to criminalize private sale transactions entered into between the petitioners as buyers of the land and the sellers of the land long back about six years ago by invoking the concept/theory of offence of insider trading applying the same relatively to the facts of the case, primarily on the ground that the petitioners as buyers of the land did not disclose to the owners of the land that the capital city is going to be located in the said area and thereby concealed the said material fact and cheated the owners of the land and on the ground that as the location of the capital was officially declared subsequently that there is a phenomenal increase in the value of the land and the owners of the land sustained loss on account of concealment of the said fact.
23) Therefore, when that be the substratum of the prosecution case, the paramount questions that arise for determination are whether it is legally permissible to criminalize private sale transactions willingly entered into by the owners/sellers of the land with the buyers for a valid sale consideration, on the sole ground that the buyers did not inform the sellers of the land that the capital area is going to be located at their lands or not under Section 420 of IPC? Whether it amounts to dishonest concealment of fact as per the Explanation appended to Section 415 of IPC? Even if there is subsequent increase in the value of the land on account of official announcement of location of the capital subsequently at that area, whether any offence under Section 420 of IPC is constituted or not is also the question to be determined. Then the other important question for determination is whether the concept of offence of insider trading is applicable to the present facts of the case. Finally, it is to be ascertained whether any element of criminality is involved in the transaction or not.
LOCUS STANDI OF THE DE FACTO COMPLAINANT TO
LODGE REPORT WITH THE POLICE:-
24) Before adverting to the above vital questions, the Court is first inclined to decide the cavil raised relating to the locus standi of the de facto complainant to lodge the report with the police setting the criminal law into motion. No doubt, admittedly, the de facto complainant is absolutely a stranger to the sales transactions that took place between the petitioners and the vendors in respect of the sale of the lands in question. The de facto complainant is not the person who sold the lands to the petitioners or to anyone and he is not the person who sustained any loss on account of the said sale transactions. However, it is to be noted that as rightly contended by the learned Advocate General that it is settled proposition of law that the concept of locus standi to set criminal law into motion is alien to criminal law. Any person who got information regarding commission of a cognizable offence is entitled to bring the same to the notice of the concerned police to investigate regarding the truth or otherwise of the said version and set the criminal law into motion. As per our criminal jurisprudence, the basic principle is that, eventually, every offence is against the society. Therefore, any person who got acquaintance with the facts of the case relating to commission of any cognizable offence can set the criminal law into motion by lodging a report to that effect. Only in exceptional cases which are exempted from this principle, which are set out in Sections 195 to 199 Cr.P.C. in respect of certain offences, the criminal has to be set into motion only by a person who is aggrieved. The present offences for which the petitioners are sought to be prosecuted do not fall within the purview of the exceptional cases under Sections 195 to 199 Cr.P.C.
25) Legal position in this regard is not res nova and the same has been authoritatively very well settled. The Constitutional Bench of the Supreme Court in the case of A.R. Antulay v. Ramdas Sriniwas Nayak and Ors.1 had an occasion to deal with this concept of locus standi of a person to set the criminal law into motion. The Apex Court at para No.6 of the Judgment held as follows:
“It is a well recognised principle of criminal jurisprudence that anyone can set or put the criminal law into motion except where the statute enacting or creating an offence indicates to the contrary. The scheme of the Cr.P.C. envisages two parallel and independent agencies for taking criminal offences to Court. Even for the most serious offence of murder, it was not disputed that a private complaint can, not only be filed but can be entertained and proceeded with according to law.”
Further held as follows:
“Locus standi of the complainant is a concept foreign to criminal jurisprudence save and except that where the statue creating an offence provides for the eligibility of the complainant, by necessary implication the general principle gets excluded by such statutory provision. …. While Section 190 Cr.P.C. permits anyone to approach the Magistrate with a complaint, it does not prescribe any qualification the complainant is required to fulfil to be eligible to file a complaint. But where an eligibility criterion for a complainant is contemplated specific provisions have been made such as to be found in Sections 195 to 199 Cr.P.C. These specific provisions clearly indicate that in the absence of any such statutory provision, a locus standi of a complainant is a concept foreign to criminal jurisprudence. In other words, the principle that anyone can set or put the criminal law in motion remains intact unless contraindicated by a statutory provision.
26) Also held that the general principle of nearly universal application is founded on a policy that an offence i. e. an act or omission made punishable by any law for the time being in force (See Section 2(n) Cr.P.C.) is not merely an offence committed in relation to the person who suffers harm but is also an offence against society. The society for its orderly and peaceful development is interested in the punishment of the offender. Therefore, prosecution for serious offences is undertaken in the name of the State representing the people which would exclude any element of private vendatta or vengeance. Punishment of the offender in the interest of the society being one of the objects behind penal statutes enacted for larger good of the society, right to initiate proceedings cannot be whittled down, circumscribed or fettered by putting it into a straight jacket formula of locus standi unknown to criminal jurisprudence, save and except specific statutory exception.
27) The Bombay High Court of Nagpur Bench in the case of Shriram Krishnappa Asegaonkar v. State of Maharashtra2 held at para No.12 of the judgment as follows:
“There is, therefore, no doubt that the complaint of offence of cheating punishable under Section 420 IPC can be filed by any person to set the law in motion and that it is not necessary that such a complaint should be filed by only the person deceived.”
28) In arriving at the said conclusion, the Bombay High Court relied on the judgment of the Division Bench of the Calcutta High Court in the case of Mahadeolal v. Emperor3 wherein the Calcutta High Court held that the prosecutor in criminal case is really the Crown and the complainant merely sets the machinery of the laws in motion, and, in a case of cheating it has been held therein that it is not necessary that complainant should have been the person deceived. In that case a pleader was deceived by writing a letter of cancellation of contract and the complaint was filed by servant of a firm, who became aware of the deception. It was held that the prosecution initiated by the servant of a firm is maintainable.
29) So, in view of the law enunciated in the aforesaid judgments, the contention of the petitioners that the de facto complainant has no locus standi to initiate criminal prosecution by way of lodging a report with the police has no merit and it is liable to be rejected. The cavil is answered accordingly in favour of the prosecution.
30) However, though the plea relating to locus standi raised by the petitioners is not legally sustainable, justification on the part of the stranger to the alleged sale transactions in question, who is the de facto complainant, in lodging a report with the police initiating criminal prosecution against the petitioners and that too after lapse of six years and its genuineness is certainly a relevant factor which requires consideration and the same will be adverted to at the appropriate time while dealing with the same during the course of discussion of this judgment.
CONCEPT OF INSIDER TRADING AND ITS APPLICATION TO
THE FACTS OF THE CASE:-
31) Ferreting out the origin and history of the offence of insider trading reveal that basically the offence of insider trading relates to trading of a public company’s stock or other securities (such as bonds or stock options) based on material, nonpublic information about the company. In various countries, some kinds of trading based on insider information is illegal, because it is seen as unfair to other investors who do not have access to the information, as the investor with insider information could potentially make larger profits than a typical investor could make. The study on the subject reveals that the rules governing the offence of insider trading are complex and vary significantly from country to country. The extent of enforcement also varies from one country to another. Trading by specific insiders, such as employees, is commonly permitted as long as it does not rely on material information not in the public domain. Rules prohibiting or criminalizing insider trading on material nonpublic information exist in most jurisdictions around the world, but the details and the efforts to enforce them vary considerably. In the United States, Sections 16(b) and 10(b) of the Securities Exchange Act, 1934 directly and indirectly address insider trading. The United States Congress enacted this law after the stock market crashed in 1929.
32) In the European Union and the United Kingdom, trading on nonpublic information is, under the rubric of market abuse, subject at a minimum to civil penalties and to possible criminal penalties as well. United Kingdom’s Financial Conduct Authority has the responsibility to investigate and prosecute insider dealing, defined by the Criminal Justice Act, 1993. Japan enacted its first law against insider trading in 1988. The Australian legislation in this regard arose out of the report of 1989 parliamentary committee report which recommended removal of the requirement that the trader be ‘connected’ with the body corporate.
33) Thus, the history pertaining to the offence of insider trading clearly reveals that the above laws are brought in this regard mainly to curb the insider trading in the field of stock market. So, it is apparent that the said offence of insider trading is essentially an offence relating to trading of public company stocks or other securities such as bonds or stock options based on material, nonpublic information about the company. Absolutely, it has nothing to do with the sale and purchase of land which is an immovable property which are private sale transactions wholly unrelated to the affairs of stock market business. As it is found that the insiders in the company who are associated with the affairs of the company have been furnishing nonpublic information unauthorisedly to some investors relating to sale of shares, bonds and other securities and as it is resulting into loss to other investors which is found to be unfair, to curb these illegal acts of insider trading, various countries across the world brought various enactments.
34) Similarly, India also brought into force the Securities and Exchange Board of India Act, 1992, to curb the offence of insider trading in the field of stock market in India.
35) As per the statement of objects and reasons of the said enactment, originally SEBI was established in 1988 through a government resolution to promote orderly and healthy growth of the securities market and for investors’ protection. This SEBI has been monitoring the activities of stock exchanges, mutual funds, merchant bankers, etc., to achieve these goals. As the capital market has witnessed tremendous growth, characterised particularly by the increasing participation of the public, it is felt that investors’ confidence in the capital market can be sustained largely by ensuring investors’ protection. With this end in view, Government decided to vest SEBI immediately with statutory powers required to deal effectively with all matters relating to capital market. So, the said Act 15 of 1992 was introduced with the above objective and the SEBI Bill has been passed by both the Houses of Parliament and received the assent of the President on 4th April 1992 and it came on to the Statute Book as the Securities and Exchange Board of India Act, 1992 with effect from 30-01-1992.
36) Therefore, insider trading in India is an offence according to Section 12-A and 15-G of the SEBI Act. As per the provisions of the aforesaid Act, the offence of insider trading is said to be committed when a person with access to nonpublic, price sensitive information about the securities of the company subscribes, buys, sells, or deals, or agrees to do so or counsels another to do so as principal or agent. Price-sensitive information is information that materially affects the value of the securities. Section 12-A of the SEBI Act deals with the acts which constitute insider trading relating to sale of any securities listed or proposed to be listed on a recognized stock exchange and Section 15-G deals with imposing penalty for committing the said offence of insider trading.
37) Therefore, insider trading is only made an offence in India under the SEBI Act, 1992 and it essentially deals with the sale and purchase of securities in the field of stock market based on nonpublic material information. It is a special enactment which specifically and exclusively deals with the offences relating to sale of securities in stock market. Insider trading is not made an offence specifically under the Indian Penal Code. No provisions akin to Section 12-A and 15-G of the SEBI Act is incorporated in IPC by the Parliament relating to private sale transactions of purchase or sale of land which is an immovable property by invoking the said concept/theory of insider trading. Therefore, the offence of insider trading is totally alien to our criminal law under IPC. It is a concept or offence totally unknown to our criminal law under Indian Penal Code.
38) When the said concept of offence of insider trading is not made applicable to purchase of any immovable property like lands of private individuals and when the same is only confined to purchase of securities and bonds under the SEBI Act, the same cannot be even contextually or relatively applied or invoked to criminalize the private sale transactions relating to purchase of a land which is an immovable property in the guise of the offence of insider trading. The provisions of Sections 12A and 15-G of the SEBI Act or any of its provisions cannot be read into and imported into the provisions of the IPC much less into Section 420 of IPC. It is not at all the intention of the Parliament to attribute any criminal liability to such private sale transactions of immovable property either under Section 420 IPC or under any provisions in the scheme of I.P.C. Therefore, this Court has absolutely no hesitation to hold that the said concept/theory of the offence of insider trading which is essentially an offence dealing with illegal sale of securities and bonds of the company cannot be applied to the private sale transactions relating to sale and purchase of lands to criminalize the said transactions under any of the provisions of the IPC much less under Section 420 of IPC. It is legally impermissible to prosecute the petitioners for the offences under Sections 420, 406, 409 and 120-B of IPC by applying the said concept of insider trading and in the guise of the said concept of insider trading.
39) Learned Advocate General would contend that the said concept of the offence of insider trading is to be relatively applied to the present facts of the case as the present facts of the case are somewhat akin to the said offence of insider trading as envisaged under the SEBI Act. By the said argument, obviously, the idea that is sought to be conveyed by the learned Advocate General is that as the allegations in the F.I.R. show that the petitioners obtained prior information from the higher officials in the Government and political leaders regarding exact location of the capital and thereby purchased the lands in the said area based on the said information, that the facts of the case constitute an offence akin to insider trading in purchasing the said lands. This Court is unable accede the said contention. It is elaborately discussed supra, while dealing with the concept of offence of insider trading and found that the said offence of insider trading essentially deals with only sale and purchase of securities and bonds based on non-public material information under the special enactment with the object of protecting the capital market and to instill investors’ confidence in the capital market. Therefore, when it is only confined to the sale and purchase of securities and bonds in the field of capital market, as already held supra, the same cannot be read into the provisions of IPC much less into Section 420 IPC. Parliament never intended to make private sale transactions relating to landed property an offence by applying the concept of insider trading or to bring the same within the purview of the said concept of insider trading. Therefore, the said contention holds no water.
RIGHT TO ACQUIRE PROPERTY IS A CONSTITUTIONAL
RIGHT AND A LEGAL RIGHT:
40) Earlier Article 19(1)(f) and Article 31 of the Constitution of India are part of Chapter III of the Constitution dealing with fundamental rights of a citizen. Article 19(1)(f) guaranteed to the Indian citizen a right to acquire, hold and dispose of property. Article 31 provided that “no person shall be deprived of his property save by authority of law”. Therefore, in view of Article 19(1)(f) and Article 31 of the Constitution, right to property was part of fundamental right of a citizen. Subsequently, by 44th constitutional amendment both Article 19(1)(f) and Article 31 were repealed with effect from 20.06.1979. So, the right to property ceased to be a fundamental right. However, the right to acquire property continues to be a constitutional right, legal right and also a human right. Provision akin to Article 31 has been incorporated under Article 300-A in Chapter-IV of the Constitution under the rubric “right to property”.
41) The Supreme Court, in the case of D.B. Basnett v. The Collector, East District, Gangtok, Sikkim4 held at para 14 of the judgment as follows:
“We may note that even though rights in land are no more a fundamental right, still it remains a constitutional right under Article 300A of the Constitution of India.”
42) The Apex Court in the case of Chairman, Indore Vikas Pradhikaran v. Pure Industrial Coke & Chemicals Ltd.5 held in following terms:
“The right to property is now considered to be not only a constitutional right but also a human right.
Under Article 17 of the Universal Declaration of Human Rights, 1948 dated 10-12-1948, adopted in the United Nations General Assembly Resolution, it is stated that: (i) Everyone has the right to own property alone as well as in association with others. (ii) No one shall be arbitrarily deprived of his property.
Earlier human rights existed to the claim of individuals right to health, right to livelihood, right to shelter and employment etc, but now human rights have started gaining a multifaceted approach. Now property rights are also incorporated within the definition of human rights. Even claim of adverse possession has to be read in consonance with human rights.
Also held that, property, while ceasing to be a fundamental right would, however, be given express recognition as a legal right, provision being made that no person shall be deprived of his property save in accordance with law.”
43) In Tuka Ram Kana Joshi v. Maharashtra Industrial Development Corporation6 the Supreme Court reiterated that right to property is now considered to be, not only a constitutional or a statutory right, but also a human right. Though it is not a basic feature of the constitution or a fundamental right, the right to property is considered very much to be part of new dimensions where human rights are considered to be in realm of individual’s rights such as the right to health, the right to livelihood, the right to shelter and employment etc., and such rights are gaining an even greater multifaceted dimension.
44) From the aforesaid exposition of law, it is now abundantly made clear that a citizen has a legal and constitutional right to acquire and hold property. The said right of an individual to hold a property apart from being a legal right, has also been held to be a human right.
45) Since the prosecution seeks to criminalize the private sale transactions validly entered into by the petitioners as buyers with their sellers for a valid sale consideration under valid registered sale deeds by which they acquired the landed property in question, the aforesaid right of the petitioners as citizens of the country to acquire property as part of their constitutional right, legal right, and human right assumes significance in this context. Therefore, for that limited purpose, the aforesaid legal position has been dealt with in this case.
FACTUAL FINDINGS:-
46) In the background of the aforesaid legal position that the right to property is a constitutional right and legal right of a citizen of the country, it is to be now seen whether buying a land without informing the seller the purpose of buying the said land or latent advantage which he may derive pertaining to the sale transaction which is within the knowledge of the buyer would amount to an offence under Section 420 of IPC and also under Sections 406 and 409 of IPC or not.
47) Before embarking upon an enquiry on this vital aspect, to have a comprehensive understanding of the case of the prosecution, few relevant facts needs a mention to have a clarity regarding the substratum of the prosecution case.
48) The erstwhile combined State of Andhra Pradesh which was originally constituted under the States Reorganization Act, 1956 with effect from 01-01-1956 was bifurcated into two States i.e., the State of Telangana and the State of Andhra Pradesh in the year 2014 as per the Andhra Pradesh Reorganization Act 2014. The said enactment was passed by the Parliament on 03.03.2014. Both the States i.e., the State of Telangana and the residuary State of the present Andhra Pradesh were formed with effect from 02-06-2014 which is the appointed day under the Andhra Pradesh Reorganization Act. In the General Assembly Elections held in the month of April, 2014 for the residuary State of Andhra Pradesh, the Telugu Desam Party came into rule. The Hyderabad city which was the capital city for the erstwhile combined state of Andhra Pradesh was made the capital for the State of Telangana. There is no capital city for the State of Andhra Pradesh. Therefore, as there is no capital for the State of Andhra Pradesh, the State Government had to take steps to establish a capital city for the newly carved out State of Andhra Pradesh. So, the Government has passed the Capital Region Development Authority enactment (hereinafter called as “C.R.D.A. Act”) to build a capital city between the Krishna District and the Guntur District by the side of the Krishna river consisting of 25 villages in the said C.R.D.A. region. G.O.Ms.No.252 and G.O.Ms.No.254 were issued to that effect notifying the capital region on 30.12.2014. A concept of land pooling was introduced under the aforesaid enactment to acquire the lands from the owners of the lands in the said villages for the purpose of establishing the capital city.
49) Whileso, after the Andhra Pradesh Reorganisation Act was passed on 03.03.2014 as there was speculation regarding location of capital between the Krishna District and the Guntur District, various people have purchased lands in between the said Krishna and Guntur Districts and the present petitioners are also among the said persons who purchased the lands in the said area. Some of the lands were purchased by them are within the capital region and most of the lands are beyond the capital region and also beyond the proposed inner ring road. The location of these lands purchased by the petitioners is identified as per the plans submitted by the prosecution along with the C.D. file.
50) Now, the main case of the prosecution is that the petitioners who purchased the said lands during the period from June, 2014 to December, 2014 got prior information regarding the exact location of the capital city unauthorisedly from higher officials in the Government and the political leaders and based on the said information they have purchased the said lands from the owners of the said lands and at that time they did not disclose to the owners that the capital city is going to come within the said area and thereby cheated the sellers of the land and they derived monetary benefit on account of increase in the land value subsequently, after location of the capital in that area is officially announced under the aforesaid G.Os. on 30.12.2014 and this has resulted into loss to the owners of the land who sold the same oblivious of the fact that the capital city is going to come in that area. Precisely this is the substratum of the prosecution case.
51) Therefore, in the light of the aforesaid version of the prosecution, the crucial question that arises for consideration is even if the said version of the prosecution is to be taken as true at its face value, whether it constitute any offences punishable under Sections 420, 409, 406 and 120-B of IPC or not.
SECTIONS 420 AND 415 OF I.P.C.
52) For better appreciation, Sections 420 and 415 of IPC are reproduced hereunder for ready reference:
“S.420. Cheating and dishonestly inducing delivery of property.—Whoever cheats and thereby dishonestly induces the person deceived to deliver any property to any person, or to make, alter or destroy the whole or any part of a valuable security, or anything which is signed or sealed, and which is capable of being converted into a valuable security, shall be punished with imprisonment of either description for a term which may extend to seven years, and shall also be liable to fine.”
53) While the above Section 420 of IPC deals with the punishment for the offence of cheating, Section 415 IPC defines what is cheating, and it reads thus:
“S.415. Cheating.—Whoever, by deceiving any person, fraudulently or dishonestly induces the person so deceived to deliver any property to any person, or to consent that any person shall retain any property, or intentionally induces the person so deceived to do or omit to do anything which he would not do or omit if he were not so deceived, and which act or omission causes or is likely to cause damage or harm to that person in body, mind, reputation or property, is said to “cheat”.
