Legal Remedies against False Allegation of Corporate Fraud | Lawyers Advice in Delhi NCR | Criminal Law Attorney in Delhi NCR | Criminal Lawyer in Delhi NCR |

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In S.P Chengalvaraya Naidu v. Jagannath JT, AIR 1994 SC 853, the apex court has observed that “fraud” is basically an act of intentional or deliberate deception with a particular design of getting something through an unfair or undue advantage of another. It has been defined as cheating intended to obtain an advantage of another party. In State of Maharashtra v. Buddhikota Subbarao (Dr.), AIR 1989 SC 2292, “Fraud” has been defined as a faulty representation by one who is aware that the same is not true with the sole intention or deliberation to deceive and mislead the other party who may act on it to his prejudice and to the undue benefit of the former or the representing party. Corporate Fraud is a type of economic offence in which a corporate entity deliberately alters or conceals sensitive information with the motive to make the entity apparently look healthier. The entity adopts various modus operandi to execute its purpose which includes wrong details in the prospectus and, or debt concealment. Notwithstanding anything, the sole purpose of a corporate entity committing fraud is to derive an unfair advantage over another party.

Legal remedial procedure for the victim of frivolous allegation: –
The person charged with a frivolous allegation of Corporate Fraud must file an application under Section 200 (aware of the falsity of the declaration, using the same as true) of the Indian Penal Code to Judicial or Metropolitan magistrate against the Police officers who corruptly and “knowingly” filed a false complaint, or have arrested, or if prosecuted the matter on false grounds. It may be noted that the complaint must contain that the Police officers have committed the criminal offence stated under Section 218 (framing incorrect record or writing by a public servant with the deliberate intention to save someone from punishment or property from forfeiture) and 220 (Confinement by someone having authority who is aware that he is acting in contravention of the law) of the Indian Penal Code. Also, the complainant can add Section 499/500 (Sections dealing with the offense of Defamation) of the Indian Penal Code along with the said sections.

It may be noted that filing a false allegation is a criminal offence under Section 182 and 211 of the Indian Penal Code and a person has a right to seek compensation under Section 250 of the Code of Criminal Procedure from the magistrate against such person making a false complaint against the former. Filing complaint under Section 182 of the Indian Penal Code is purely based on the grounds of the allegations made out in the First Information Report and the reports relied upon by the parties either in support or against the same.

Grounds to register a complaint under Section 482 of the Code of Criminal Procedure: –
Under Section 482 of the Code of Criminal Procedure, the Hon’ble High Court has been vested with the inherent power to give directions which is necessary to prevent abuse of the court procedure and to meet the ends of the justice. A person charged with a false allegation of fraud can file or register a complaint under Section 482 of the Code of Criminal Procedure subject to the following grounds: –

1. The criminal offence alleged in the First Information Report lodged has never happened;
2. The allegation or accusation made out in the First Information Report is baseless and lacks reasonable ground;
3. The act or omission alleged in the First Information Report does not constitute an offence.

Grounds to register application under section 227 of the Code of Criminal Procedure: –
It may be noted that before filing the charge sheet, when an application is registered under Section 482 of the Code of Criminal Procedure for quashing the frivolous complaint of fraud, the Hon’ble High Court can repeal the same subject to the condition that it is strictly against Natural justice and further can cause prevention of justice to the victim. After the registration of charge sheet by the Police, the accused can file an application under section 227 of the Code of Criminal Procedure in order to get freed from all charges made against him in the Complaint based upon the following grounds:

1. Lack of prima facie evidence against the accused in the charge sheet with respect to the offence made against him;
2. The piece of evidence cannot be made, as the same is inadmissible under the Indian Evidence Act;
3. The trial cannot be commenced as the same may lead to abuse of the court procedure and prevention of justice to the innocent.

In Som Mittal v. Government of Karnataka, Special Leave Petition (Criminal) Number 1719 of 2006, the Hon’ble Supreme Court clearly held that the inherent power of the Court under Section 482 of the Code of Criminal Procedure can be entreated when, there is a probability of grave injustice, or the accused would be needlessly be harassed or troubled if the trial is allowed to commenced, and or, when it is prima facie visible to the court that the trial would end up in acquittal.

Scope of Section 209 of the Indian Penal Code defining points to substantiate fraudulent claims: –
Under Section 209 of the Indian Penal Code, a person making fraudulent claims dishonestly shall be imprisoned for a period up to two years and also be accountable to fine. Now, in order to prove the falsity of the offence under the given section, it is not only important that the claim made was frivolous but its object must also be fraudulent with the purpose to cause wrongful loss or gain or to annoy and injure the party. Furthermore, it may be noted that the offence is executed the moment suit is filed before the court. In HS Bedi v. National Highways Authority of India in RFA 784 of 2010, the Hon’ble Delhi Court determined the scope of criminal offence placing its essential ingredients:
 firstly, the accused must have made a claim;
 secondly, the claim is made in a Court of Justice;
 the claim made is frivolous either fully or in part;
 the accused is aware of the falsity of the claim;
 the claim made is made with a fraudulent mind with the intention to injure the person.

Apex Court guidelines in respect of granting Bail for cases involving Economic Offences: –
The Supreme Court of India in Y.S Jagan Mohan Reddy v. Central Bureau of Investigation, Criminal Appeal Number 730 of 2013, forwarded few guidelines with respect to granting bail in cases involving economic offence:
a. Nature of accusations;
b. Nature of evidence in support of the accusation;
c. The severity of the punishment entailed by the conviction;
d. The character of the accused;
e. Situations which are peculiar to the accused;
f. Reasonable possibility of protecting the presence of the accused at the trial.

Provision of Anticipatory bail is designed to protect accused from false allegations: –
The Hon’ble Supreme Court of India in Sushila Aggarwal and others v. State, NCT of Delhi, Special Leave Petition (Criminal) Number 72817282 of 2017, clearly held that the provision of Section 438 of the Code of Criminal Procedure dealing with anticipatory bail is liberty-centric and is measure specially enacted to protect anyone against arbitrary arrest and humiliation by the Police. It may be noted that the court further held that having due regard to every situation, relief under anticipatory bail can be granted in respect of every offence. Considering the view given by the court, a person falsely charged with Corporate fraud fearing arrest can also seek relief of anticipatory bail under Section 438 of the Code of Criminal Procedure. The 41st report of the Law Commission considering the need of anticipatory bail under Section 438 of the Indian Penal Code clearly observed that the necessity and requirement of granting anticipatory bail arise as a sometimes-influential person try to implicate their rivals in frivolous matters with the sole purpose of injuring and harassing them or forgetting them detained in jail for some days.

False and frivolous allegations can tarnish the image, health and overall life of an individual. It is extremely important that an individual charged with a frivolous allegation takes the step mentioned in the earlier paragraphs to avoid the peril of detention. In case of corporate fraud, our judiciary has time and again passed verdicts favoring the individual charged with a frivolous allegation. The personal liberty of a person defined under Article 21 of the Constitution of India needs to be protected at every cost. And for that, it is important that such an individual is protected from getting injured and harassed under frivolous charges. Such an individual is eligible for anticipatory bail under Section 438 of the Indian Penal Code. In the earlier paragraphs, we have discussed the various orders of the judiciary based upon securing the liberty against arbitrary arrest on false allegations.
Authored By: Adv. Anant Sharma & Aniket Pandey