SUPREME COURT SETS ASIDE FIR AGAINST STANDARD CHARTERED BANK IN SHARE ESCROW AGREEMENT CASE:

The Supreme Court recently quashed a First Information Report (FIR) registered against Standard Chartered Bank and Starship Equity Holding Ltd. in connection with a share escrow agreement executed between two entities. The Court remarked that the criminal proceedings initiated against the bank amounted to a “gross abuse of the process of law.”

The dispute stemmed from an Escrow and Settlement Transaction Agreement executed in 2007 among Corsair, Katra, and Standard Chartered Bank, Mauritius. Under this agreement, the Respondent—Vector Program Pvt. Ltd.—agreed to sell 13,455 shares of Tamil Nadu Mercantile Bank unconditionally and irrevocably to entities identified by Corsair for a total consideration of Rs.32,53,68,810.

Starship Equity Holding Ltd. (Starship) was identified as an independent investor for the share purchase. On 13.05.2007, Tamil Nadu Mercantile Bank approved the transfer of shares in favour of the respondent, Vector. On the same day, those shares were subsequently transferred and deposited with Standard Chartered Bank’s Mumbai branch. Following the completion of the transaction, Vector received the agreed sum of Rs.32,53,68,810 on 15.05.2007.

Subsequently, the valuation of the shares rose significantly. Dissatisfied with having missed out on the increased value due to its own commercial decision, Vector made an unsuccessful attempt to nullify the transaction by filing a civil suit in 2011 seeking to terminate the Escrow Agreement and reclaim the shares. However, the Bombay High Court denied any relief in the civil litigation, and a Division Bench of the High Court also dismissed Vector’s appeal.

Shortly after this dismissal, Vector initiated criminal proceedings in 2016 by lodging a complaint that led to the registration of an FIR by the Indiranagar Police Station in Bangalore. Pursuant to Section 93 of the Code of Criminal Procedure, share certificates were seized during the investigation. The FIR invoked offences under Sections 406, 409, 420, 108-A, 109, and 120-B of the Indian Penal Code, 1860.

Upon the Karnataka High Court’s refusal to quash the FIR, the Bank approached the Supreme Court. A bench comprising Justice M.M. Sundresh and Justice Rajesh Bindal observed that this was a case where the High Court ought to have exercised its inherent powers under Section 482 of the Code of Criminal Procedure to quash the criminal proceedings initiated against the appellants under Sections 406, 409, 420, 108-A, 109, and 120-B of the IPC, 1860.

The Supreme Court found no material to support the FIR and noted that several transactions had been suppressed. It observed that respondent Vector had signed the documents, transferred the shares, and received the payment by 15.05.2007. The Court emphasized that the civil suit filed by Vector to terminate the Escrow Agreement and reclaim the shares was an afterthought, following the adverse decisions by both the single judge and Division Bench of the Bombay High Court. Soon after these setbacks, Vector hastily initiated criminal proceedings. The Court noted there was no contrary material indicating any other criminal proceedings against the appellants and highlighted that Vector had benefited from the transaction. Concluding that the Karnataka High Court erred in failing to consider the material and Bombay High Court’s rulings correctly, the Supreme Court held that this was a clear case of abuse of legal process where the High Court ought to have exercised its inherent powers under Section 482 CrPC to quash the proceedings.