On appeals arising from an order of the Delhi High Court rejecting a petition for quashing criminal proceedings, the Hon’ble Supreme Court set aside the order of the Delhi High Court and held that amalgamation of two companies is the destruction of the corporate existence of the transferor company. It further stated that only defined legal proceedings are succeeded by the transferee company.
In this matter, a criminal complaint was lodged asserting that officials of Laxmi Vilas Bank (LVB) had conspired to siphon off funds that were lent and belonged to the Complainant, resulting in an FIR under Sections 409 and 120-B of the Penal Code, 1860. Meanwhile, due to LVB's unstable financial condition, the Central Government directed its non-voluntary amalgamation to DBS, under Section 45(7) of the Banking Regulation Act, 1949.
Aggrieved by the issuance of summons, DBS filed a criminal miscellaneous case before the Delhi High Court, seeking to quash the supplementary charge-sheet and summoning order. The High Court, in its order had observed that quashing the summoning order against the DBS at this stage may hamper the purpose of the scheme since there was no explicit provision for abatement of criminal proceedings against DBS bank in the scheme sanctioned by RBI.
Based on the factual narratives, the issues before the Hon’ble Supreme Court was that whether a transferee entity can be fastened with corporate criminal liability for the offences which the amalgamating entity-the erstwhile LVB is accused of.
The Hon’ble Supreme Court noted that every scheme of amalgamation is statutory under the Banking Regulation Act,1949, aiming to secure public interest and health of the banking industry. Late intervention can result in a “run” on it, undermining confidence in the financial system. The scheme ensures recovery of dues and creditor protection. Therefore, criminal liability cannot be attributed to DBS nor its directors appointment post-amalgamation with Reserve Bank of India’s approval.
The Hon’ble Supreme Court noted that the Companies Act, 2013 does not define ‘amalgamation’ and referred various definitions, including its own decision in General Radio & Appliances Co. Ltd. V. M.A Khader and wherein it was held that the transferor company ceases to exist, and the amalgamated company acquires a new status. The Court emphasized that a corporation, like an individual, can be convicted under common law. Criminal liability arises when an offence is committed by a person in control of the corporation’s affairs, to the extent that the corporation acts through that person.
Hence, the Court held that that the criminal liability of the individuals now attributed to DBS are actions of officials of LVB. Their individual responsibility and accountability in criminal law, is and remains unaffected by the amalgamation. Therefore, there is in fact, no involvement of DBS Bank revealed in the charge sheet filed by the Police. In completely ignoring these aspects and proceeding on a rather superficial basis, the High Court fell into error.
Religare Finvest Ltd. v. State (NCT of Delhi)
(2024) 1 SCC 797
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