In a significant ruling on corporate criminal liability, the Supreme Court has clarified that allegations linked to “fraud” under the Companies Act cannot be taken up by a criminal court on the basis of a private complaint alone. The judgment brings relief to two former directors facing prosecution in a bitter boardroom dispute from Telangana, while allowing criminal charges under the Indian Penal Code (IPC) to continue before a regular court.
The decision was delivered by a Bench of Supreme Court of India comprising Justice J.K. Maheshwari and Justice K. Vinod Chandran.
Background of the case
The dispute arose from the affairs of a Hyderabad-based real estate company, Shreemukh Namitha Homes Private Limited. The complainant, one of the original promoters, accused two other directors of illegally holding meetings, appointing new directors, and filing allegedly false documents with the Ministry of Corporate Affairs after they were voted out of office in November 2021.
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Based on these allegations, a Special Court for Economic Offences took cognisance of offences under Sections 448 and 451 of the Companies Act, 2013-relating to false statements and repeated default-along with several IPC provisions such as cheating, forgery, and criminal conspiracy.
The accused directors moved the Telangana High Court seeking quashing of the proceedings, arguing that the dispute was essentially civil and corporate in nature. The High Court rejected the plea, prompting an appeal to the Supreme Court.
At the heart of the case was a technical but crucial question:
Can a criminal court take cognisance of offences under Section 448 of the Companies Act on a private complaint, when punishment for that section flows from Section 447, which deals with fraud?
The appellants argued that Section 447 triggers a statutory bar. Under Section 212(6) of the Companies Act, courts can take cognisance of fraud-related offences only on a complaint filed by the Serious Fraud Investigation Office (SFIO) or an authorised government officer-not by a private individual.
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Court’s observations
The Bench undertook a detailed reading of the Companies Act and its 2015 amendment history. It noted that Section 448 does not prescribe punishment on its own and explicitly makes an accused “liable under Section 447” if false statements are proved.
“The offence under Section 448 cannot be read in isolation,” the Court observed, explaining that it is inseparably linked to the punishment for fraud under Section 447.
The judges further underlined the legislative intent behind restricting private prosecutions in fraud cases. “This safeguard was put in place to prevent frivolous complaints by disgruntled shareholders,” the Bench said, stressing that allegations of corporate fraud require prior scrutiny by statutory authorities.
The Court also found fault with the Telangana High Court for not considering its own earlier ruling on a similar legal issue.
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Decision of the Supreme Court
Allowing the appeals in part, the Supreme Court set aside the High Court’s order and passed the following directions:
- Criminal proceedings under Sections 448 and 451 of the Companies Act were quashed, as cognisance could not have been taken on a private complaint.
- The Court clarified that complainants alleging fraud are not without remedy and may approach the National Company Law Tribunal under the procedure prescribed in the Companies Act.
- Proceedings relating to IPC offences-such as cheating and forgery-were not quashed. The Court held that the existence of civil or company law disputes does not automatically wipe out criminal liability.
- Since the Companies Act charges no longer survived, the Special Court was directed to transfer the IPC case to a regular court of territorial jurisdiction within four weeks.
The Bench made it clear that its observations should not influence the trial court while examining the IPC allegations on their own merits.
Case Title: Yerram Vijay Kumar vs State of Telangana & Anr.
Case No.: Criminal Appeal arising out of SLP (Crl.) No. 11530 of 2024
Decision Date: 9 January 2026
