The Bombay High Court has clarified that an employee of a financial entity offering high-return investment schemes can be held criminally liable under the Maharashtra Protection of Interest of Depositors Act, 1999, if they receive substantial commissions and acquire assets linked to the scheme, even without direct control over its design. This ruling reinforces that participation in the promotion and inducement of deposits, coupled with personal benefit, constitutes a prima facie case for framing charges.
Background & Facts
The Dispute
The appellant, Sunil Dada Gaji, a 57-year-old businessman, was employed by Temple Rose Real Estate Pvt. Ltd. (TRRE), a company that offered investment schemes such as 'Plots on EMI', 'Buy Back', 'Income Growth Plan', 'Revenue Sharing', 'Direct Double', and 'Unit Certificates', promising 20% to 24% annual returns over 4 to 5 years. TRRE was incorporated on 27.03.2007. The appellant joined TRRE on 01.04.2013 as President cum Manager on probation and was made permanent on 01.07.2013. On 16.10.2016, he was authorized to operate one of TRRE’s 23 bank accounts. TRRE’s operations ceased after an FIR was filed on 17.01.2017 at Bhoiwada Police Station, Mumbai, followed by a second FIR on 03.05.2017 at Chaturshrungi Police Station. A chargesheet was filed against TRRE’s directors (Accused 1 to 5) in 2017. The appellant was arrested on 24.07.2017 in connection with FIR No. 275/2017 and released on bail on 22.12.2017. A discharge application filed by him was rejected on 18.03.2023. The High Court later allowed his appeal against the discharge rejection and directed the trial court to reconsider it afresh. On 25.01.2024, the trial court again rejected the discharge application. The present appeal challenges that order.
Key Facts
- TRRE’s investment schemes were floated from 2008 onwards
- Appellant joined TRRE on 01.04.2013
- Appellant received a salary and an additional commission, allegedly amounting to ₹2 crores
- Commission was not documented under any written contract
- Appellant acquired immovable properties in his name and in the names of family members
- Forensic Audit Report revealed that the appellant held 1.20% of total land purchased by TRRE’s directors
- Properties acquired by the appellant were purchased prior to his association with TRRE
- Appellant invested ₹1.22 crores in TRRE’s schemes and suffered losses
- No evidence in the Forensic Audit Report or charge-sheet showed the appellant collected deposits or authored the schemes
- Other individuals named in the Forensic Audit Report as property purchasers were not made accused
Procedural History
- 27.03.2007: TRRE incorporated
- 01.04.2013: Appellant appointed as President cum Manager (probation)
- 01.07.2013: Appellant made permanent
- 16.10.2016: Appellant authorized to operate one of TRRE’s bank accounts
- 17.01.2017: First FIR filed at Bhoiwada Police Station
- 03.05.2017: Second FIR filed at Chaturshrungi Police Station
- 24.07.2017: Appellant arrested
- 22.12.2017: Appellant released on bail
- 2017: Chargesheet filed against TRRE directors (Accused 1 - 5)
- 18.03.2023: Trial Court rejected appellant’s discharge application
- 25.01.2024: Trial Court, on reconsideration, again rejected discharge application
- 08.05.2026: Bombay High Court delivered judgment on appeal
The Parties' Positions
For the Appellant
The appellant argued he was merely an employee with no role in designing or managing TRRE’s schemes. He claimed he was a victim himself, having invested ₹1.22 crores with no returns. He contended that the Forensic Audit Report and charge-sheet did not link him to collection of deposits, misappropriation, or criminal conspiracy. He emphasized that his commission was remuneration for marketing services, not illegal gain. He asserted that his property acquisitions predated his association with TRRE and were funded by legitimate income, supported by income tax records. He argued that the charge-sheet relied on vague, uncorroborated investor statements and that the prosecution failed to establish common intention under Section 34 IPC or criminal misappropriation under Sections 406, 409, 420 IPC read with Section 3 MPID Act.
For the Respondent-State
The State supported the trial court’s order, arguing that the appellant’s receipt of ₹2 crores in commission, coupled with acquisition of immovable property, demonstrated active participation in the scheme’s promotion. It contended that his role as a commission agent, not merely an employee, made him complicit in inducing public deposits. The State relied on the Forensic Audit Report and witness statements to establish a prima facie case.
Relief Sought
The appellant sought discharge under Section 227 CrPC, arguing that no prima facie case existed against him. He requested the impugned order dated 25.01.2024 be set aside and his application for discharge be allowed.
The Legal Issue
Whether an employee of a financial entity, who receives substantial unrecorded commission and acquires assets linked to the scheme, can be held to have a prima facie case for criminal conspiracy and misappropriation under the MPID Act and IPC, despite not being a director or scheme architect?
Arguments Presented
For the Appellant
The appellant relied on the absence of any direct role in designing the schemes, the lack of evidence linking him to collection or misappropriation of deposits, and the fact that his property purchases predated his employment. He cited Union of India v. Prafulla Kumar Samal and Palvinder Singh v. Balwinder Singh to argue that at the discharge stage, the court must assess whether a prima facie case exists, and mere suspicion without corroboration is insufficient. He emphasized that commission received as remuneration for marketing services cannot be equated with criminal proceeds.
For the Respondent-State
The State contended that the appellant’s receipt of ₹2 crores in commission, his position as Marketing President and Financial Advisor, and his acquisition of immovable property demonstrated active involvement in the scheme’s promotion. It argued that the Forensic Audit Report and witness statements collectively established a pattern of inducement and benefit, satisfying the threshold for a prima facie case under Section 227 CrPC.
The Court's Analysis
The Court examined the legal standard for discharge under Section 227 CrPC, referencing multiple Supreme Court precedents. It noted that the court at this stage is not required to weigh evidence or determine credibility, but must assess whether a prima facie case exists based on the materials on record. The Court cited Union of India v. Prafulla Kumar Samal to affirm that if the materials disclose grave suspicion not properly explained, the court is justified in framing charges. It further relied on R.S. Nayak v. A.R. Antulay and State of Maharashtra v. Soma Nath Thapa to hold that even strong suspicion, without full proof, suffices at the discharge stage.
The Court rejected the appellant’s claim that he was merely an employee with no criminal liability. It observed that while he was not a director, he received ₹2 crores in commission, which was not documented and was clearly linked to the promotion of deposits. The Court noted that the Forensic Audit Report confirmed his acquisition of immovable property, and although he held only 1.20% of the total land purchased by TRRE’s directors, this was not insignificant in the context of the scale of the fraud. The Court held:
"The Appellant has not only acted in his capacity as an agent or an employee of a disclosed principle but has also received commission in addition to the salary received from the Company. The commission received is admittedly not under any written contract... the Appellant has received benefits for inducing people in making deposits with the company in accordance with the scheme."
The Court further dismissed the argument that the schemes were floated before his employment, noting that his role as a commission agent from 2013 onwards was sufficient to establish participation in the ongoing criminal enterprise. The Court concluded that the cumulative effect of his commission, asset acquisition, and role as a financial advisor created a prima facie case under Sections 119, 120, 406, 409, 420 IPC read with Section 3 MPID Act.
The Verdict
The appeal was dismissed. The Bombay High Court upheld the trial court’s order dated 25.01.2024, rejecting the appellant’s discharge application. The Court held that a prima facie case existed against the appellant under the MPID Act and relevant provisions of the IPC, warranting trial. The appellant shall face trial on charges of criminal conspiracy, criminal breach of trust, cheating, and misappropriation.
What This Means For Similar Cases
Commission-Based Roles in Financial Schemes Carry Criminal Risk
- Practitioners must advise clients that receiving unrecorded commissions from high-return investment schemes, even as an employee, can trigger criminal liability under MPID Act and IPC
- The absence of a written contract does not immunize an individual from prosecution if the commission is demonstrably tied to deposit mobilization
- Forensic audit findings linking an individual to asset acquisition, even in small percentages, may be sufficient to establish a prima facie case
Discharge Under Section 227 CrPC Is Not a Shield for Indirect Participation
- Courts will not discharge accused merely because they were not directors or scheme architects
- Active participation in promotion, even as a marketing agent, coupled with financial benefit, satisfies the threshold for framing charges
- The burden shifts to the accused to explain the source of wealth or commission if it is disproportionate to legitimate income
Asset Acquisition Triggers Suspicion Even Without Direct Theft
- Acquisition of property by an accused, even if purchased before employment, becomes suspicious if it coincides with receipt of unexplained commissions
- Courts will consider the totality of circumstances - commission, asset acquisition, role in scheme promotion - to determine prima facie guilt
- Tax records and pre-employment asset ownership may help, but must be convincingly documented and corroborated
