'Dividend Is Company Discretion': Kerala High Court Questions Cheating Charges If Complainants In Fashion Gold Case Are Shareholders

The Kerala High Court on Thursday (August 7) orally asked if the offence of cheating under Section 420 IPC would be made out if the complainants in the Fashion gold case turned out to be shareholders of the four accused companies. 

Justice Bechu Kurian Thomas was considering the bail pleas of former MLA M.C. Kamarudheen and his business associate T.K. Pookoya Thangal, who respectively were the Chairman and Managing Director of the four accused companies, Fashion Gold International, Fashion Ornaments Pvt. Ltd., Qamar Fashion Gold Pvt. Ltd., and Nujum Gold Pvt. Ltd.

The bail applications were preferred following the registration of a case alleging offence under Section 3 of the Prevention of Money Laundering Act (PMLA) against the accused individuals and companies. As per the provision, to make out an offence under it, three ingredients have to be satisfied. One of the ingredients is the commission of any of the predicate offences mentioned in the Schedule of the PMLA.

The prosecution allegation was that the two accused persons siphoned off more than Rupees 20 crores of investor money, which was invested in the accused companies. It was alleged that the petitioners had committed offences including that under Section 420 [Cheating and dishonestly inducing delivery of property] of the Indian Penal Code. 168 FIRs were registered by the Police based on complaints and chargesheet had been filed in six of the cases.

The Enforcement Directorate (ED), thereafter, investigated the cases and looked at the trail of money transactions conducted by the accused companies. ED stated that as per its investigation, the money was transferred into the personal accounts of the accused individuals without returning the money to the investors. It was alleged that thereupon, this money was used to purchase properties, which was later sold at a profit. It was alleged that this profits were pocketed by the accused individuals illegally and by cheating the investors, thereby committing the predicate offence of cheating. 

The ED alleged that three ingredients for satisfying the offences of Section 3 PMLA was made out in the present case.

Crime No.ECIR/KZSZO/06/2020 was registered by the Enforcement Directorate, Kozhikode arraying Kamarudheen and Pookoya Thangal as accused nos. 5 and 6.

The counsel for the petitioners submitted that they have been undergoing imprisonment for almost 8 months in total and that they were aged persons. Moreover, investigation has been completed and 20 crores worth of property has been attached. The counsel argued that the only offences, if any, which can be made out would be those under the Companies Act and that the offence of cheating does not stand. Thus, he prayed that the petitioners may be granted bail.

When the case came up for consideration, the judge inquired whether the complainants in the FIRs were shareholders in the four companies. Earlier, the Court had asked the petitioners to produce documents to show that they legally acceptable shares and accordingly, the petitioners had produced certain documents showing shareholding of the companies.

After looking through the documents, the Court asked whether the complainants in the FIR were shareholders.

"Please tell me, are the persons who are the de facto complainants, whose complaints have now become the final reports for predicate offence being shown anywhere as shareholders? If so, their allegations that they have not been paid profits cannot be accepted as per law. Then they are only entitled to dividends, which is the discretion of the company to decide to disburse dividends or not. Failure to disburse dividends cannot amount to a cheating," the Court orally observed.

However, since the documents were produced today, the Court granted time to the parties to verify the same. The case is posted on next Thursday for further consideration.

Case No: Bail Appl. No. 6063/2025 and connected case

Case Title: M.C. Kamarudheen v. State of Kerala and connected case

Counsel for the petitioners: Anoop V. Nair

Counsel for the respondents: AR. L. Sundaresan, ASGI